In case you didn't know, Wall Street just had one of the largest crashes in the history of the market. Bank of America purchased Merrill Lynch, one of the largest financial service firms in the world, for next to nothing. Lehman Brothers, a financial institution founded in Alabama in the 1850s and survived the Civil War, could not withstand last week and is filing for bankruptcy. Just before writing this article, I made a few credit card payments.
I know there's a good chance many people don't care about these sorts of things. They're too busy buying textbooks for class, paying tuition bills or trying to figure out what to buy for that awesome girl or guy they like. Unfortunately, what has happened on Wall Street matters more than most people may think. The crash was caused, on the most basic level, by improper uses of credit, something that was not restricted to any one special "class" within American society. The effects trickled down from the most high-profile meltdowns of Bear Stearns and others, all the way to individual home owners and credit card holders. The bottom line is as follows: Banks lent money too freely to people who could not afford to pay it back.
America's rampant habit of borrowing money on credit may very well spell the downfall of our financial system, our government and you.
Since the market's crash, the government has proposed massive loans to banks to help get them out of the mess that they themselves got into. After making record profits off of shaky mortgages and high risk credit cards, the financial institutions of America will get a blank check from the tax payers to make it all better. Where is the money coming from to issue these government loans? China and Saudi Arabia. Even after we've finished worrying about just how much of our national debt has been scooped up by foreign investors, the U.S. government is still staring in the face of a massive deficit from having cut taxes and continuing to fight an expensive war.
With all of the debt being accrued by the government, who will have to make the minimum payments on the trillions owed to foreigners? You, the taxpayer. Problem is, you have more money going out than coming in. To make ends meet, or so you can go out tonight, you need money from your credit card - the very credit card that was issued by the same banks that are currently going under. Thus, the vicious cycle continues.
Clearly, something has to be done to get us out of this downward spiral. Want to know the most effective thing you can do to avoid falling victim to the credit crunch? Stop spending more than you make! Stop! When they offer you a shirt that says "College" on it at Brower just for filling out a credit application, don't do it. When the credit card companies offer you a free fat sandwich in exchange for a brand new Visa, fight the urge. When you go to Wendy's, for the love of all that is fiscally responsible, don't charge your $3 worth of value menu items to your AMEX.
Credit is the foundation to the American dream, but don't screw it up by getting a credit card when you have no real income and are already saddled with student loans. Someday, you may want to buy a new car or house, and you can't do that if you keep forgetting to pay off that slice of pizza. The one you argued about with the pizza guy over the minimum credit card charge.
Take a minute and look at the greatest minds in finance losing their shirts, all because their expenses exceeded their earnings. Look at our government barely making minimum payments on its increasing debt. This is really basic stuff, as easy as balancing your checkbook to avoid overdrawing your checking account. The only way to break the cycle is to take matters into your own hands. So, wait up on the new sunglasses and skip the 30 of Natty this week. You'll thank me when you have no debt and the banks are paying YOU interest for having saved your money.
Preston Saks is a Rutgers College junior majoring in political science. His column "Thought is Free" runs on alternate Tuesdays. He welcomes feedback at prestonsaks@yahoo.com.
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