The current "credit" crisis would be absolutely fascinating if it were not so terrifying. How did we get here? Somewhat like the wily coyote, we are suspended over a precipice, slowly coming to the realization that the road we were on ended abruptly, some time ago.
And how are our politicians and captains of industry responding to this?
Here's my current favourite example: GMAC is the division of General Motors that lends money to dealers so they can sell people cars on credit. Well, on Christmas Eve, the US Federal Reserve approved GMAC's status as a bank, allowing it to borrow SIX BILLION dollars from the US Treasury Bank-bailout package. Looks like there is a Santa Claus, if you're a fat enough cat.
That's right - a failing division of a car company that is failing because consumers don't want to buy its crappy vehicles is allowed to call itself a bank so that it can have access to bailout money for failing banks. Why? So it can lend (in the end) consumers more money that they don't have to buy vehicles that they really should not be buying. Let's remember why the banks started failing in the first place. Because the people they were lending money to had no chance in hell of paying it back in the first place.
Isn't this putting out the fire with gasoline?
For years, we've been warned about the mounting level of personal debt. Consider
this Maclean's article from 2004, which notes that Canadian savings have dropped from 15.8% of annual income to less than 1.4% between 1985 and 2003. Or look at this summary of a June 2008 Report On Business story. The average Canadian now owes over 131% of his or her annual income. Woah!
Lend, lend, lend to the people, so we can spend, spend, spend! Keep those wheels of industry churning. Oh-oh. Was that a "sharp drop ahead" sign?