The Bailing Out of the Reckless Has Gone Global

The euphoria on Wall Street with its recent rallies and the reactions to the G-20 summit, which essentially calls for nations to commit more money towards economic stimulus efforts worldwide including $1,000,000,000 for the IMF to help to prop up developing countries, once again puts the celebration squarely on bailouts as the only way to combat the collateral damage of the near-collapse of world financial markets; the bailing out of the reckless has gone global.

In the meantime, the only people who do not seem to be benefiting from any of this financial benevolence are those who "did the right thing." Those who were responsible for their financial actions are getting a rude blow; while their irresponsible compatriots are defaulting on their mortgages, credit card payments and other loans, the dutiful credit borrowers who paid on time, never missed a payment and did not carry large balances are having their credit lines slashed in droves at a time when the credit cushion safety net is most needed. Wasn't this the reason why you paid on time and kept your balances low, so that you could have the credit line available for a financial emergency?

Instead of reward, banks are reducing the credit lines of the diligent folk in order to reduce the amount of reserves required to cover the balances of those who default on their payments. While Wall Street may think their world is getting better now that they are infused with taxpayer cash to meet their debt obligations, the taxpayers are wondering how they are going to meet their debt obligations.

You know the consumer credit crisis is coming; it has already been forecast since the beginning of last year and finally the news is beginning to trickle out. A couple weeks ago it was reported that credit card defaults had reached a 20 year high. It is surer than sure that this whole consumer credit market is seriously about to blow. Nearly 2,000,000 people have lost their jobs this year alone. Compare this to 2008 where the total job loss for the year was 2,600,000. The current clip puts the US on track to lose at least 5,000,000 jobs this year. That is a heck of a lot of people who will stop paying on their cards or will be charging up what's left of their credit lines to survive now that they are jobless; soon they will run out of credit and stop paying on that too. Bankruptcy filings have risen 55% on Long Island this year.

Lenders are tightening their standards, raising interest rates and reducing or canceling consumer credit lines as fast as they can. Unfortunately, credit has fueled our consumer-based economy; consumer spending is responsible for nearly 70% of the US Gross Domestic Product (GDP). 2008 GDP was approximately $14,000,000,000,000. To put it in perspective, the government and the Federal Reserve have lent, promised or guaranteed approximately $12,000,000,000,000 to stem the financial meltdown. The consumer borrow and spend mentality that has fueled this decade's growth will have to be replaced with something else in order to maintain the current GDP. What will that be?

All of this bailout and "not being held accountable for one's actions" does make it very tempting to quit paying those credit card bills and suffer the consequences along with the rest of the folk. Those with business debts and other debts may just abandon paying because they see no reward in doing so. After all, should any of us really be concerned with the negative marks on our credit reports. If your score is below 720, what do you have to lose? No one is going to give you any new credit anyway. I think sometimes of abandoning paying back the credit cards that were used to start our unsuccessful business venture. I have been laid off from the job that I specifically went out and procured to pay this business debt. We are struggling to pay them since I still have not received any unemployment compensation.

However, I am chicken. I want to be able to refinance my mortgage should interest rates continue to fall. I want to be able to get a job in the future without being disqualified because of a bad credit score. My car was originally leased as a business vehicle and the lease is up in a year; I will need good credit to get a replacement vehicle. The relief for the prudent is non-existent, only the assurance that without all of this economic and financial intervention for the greedy and irresponsible, we would all fail. So much for keeping up with the Joneses.