Brave new world, old rules?

 

• by Ulf Nilson
  Nordstjernan columnist, November, 2008

• If we had lived by the old rules, we wouldn't be in a terrible crisis. We wouldn’t have been hit with what, to quote Warren Buffet, was a financial Pearl Harbor.
  Right?
  Yes, right. The old rules said that you should not buy what you couldn’t pay for. And if you did borrow, you should make sure – before the transaction, please – that you would be able to make the installments. Conservative folks, like myself, of course, waited to buy that car until we had the cash. Same with the house.
  This was fairly stupid, I would have to admit. I could have used a car – and a house – long before I could buy either. I could have traveled more and my kids could have had their own rooms much earlier. But as I said, I played by the old rules.
  That there were other rules didn’t really dawn on me until I came to the US in 1963. I was 30 and had never borrowed a penny, which made me, on Manhattan, undoubtedly a country hick.
  So, I walked into a car dealer’s shop. Soon enough I found a Chevrolet Impala that pleased me. It cost about $3,000 at the time. So I asked the sales man if I wouldn’t get a somewhat better price since I paid cash (I had the money in my pocket). To my great surprise, he said no, no. They made so much money on the interest on the loan (which I didn’t want) that they preferred installments. (I paid cash anyway; it wasn’t prohibited.)
  A little later, I applied for a credit card (Carte Blanche). On the application I noted that I had no debts. The application was promptly refused. Confused, I asked my friend and colleague, Arne Thorén, why he, who had debts, could get a card, while I, who was without debts, couldn’t.
  "Stupid," Arne said. "Having no debt proves that you have NO CREDIT."
  I applied again, citing a few debts I didn’t have. And so I got my card.
  And this is where I turn the argument upside down. For with my new card I could buy things, like a new electric typewriter (my first), in spite of the fact that money had not arrived from Stockholm. I could take friends and clients to dinner; the ticket to the Washington shuttle was only a signature away. And so on.
  More important, much more, is the fact that thousands, no millions of projects depend on credit. If we had lived by the old rules - cash only – where would we have been? I am fairly sure that we wouldn’t have produced the doctors and the medicines that help us live so much longer; we would have much fewer books to read, probably no Internet, much fewer resorts to visit, etc. If we, the people as well as the banks, hadn’t taken the risks, hadn’t bet on the future without being at all sure that the bet was a winning one, we simply wouldn’t be where we are, but in an older, less fascinating world. We would, indeed, have been poorer in many ways.
  This is not to say, of course, that Wall Street did everything right. It did not. In fact neither Wall Street nor Main Street can escape blame. All too many people, literally millions, thought that you can get something for nothing – and the bankers, brokers, and analysts egged them on. But again: While many of us will suffer (let me tell you I lost a bundle), there is no risk, no risk at all that we will land back in the 1930's. We might be poor for a while but on a much, much higher level than at that time or in the 1940's or 50's. We’ll have to adjust and start all over again, but then, isn’t that what life is all about…?