Hey, buddy, can you spare a billion?

A landlord once told me that he was worried where he was going to get his next 1,000 dollars, which kind of put my problems in perspective.  For many major companies right now, figuring out where they are going to get their next billion dollars is a major concern.  America has become addicted to easy credit, from the Federal government down to the folks next door.  The term ‘bridge loan’ has nothing to do with bridges, but instead is an industry term for short-term financing to get through until expected funds become available.  It is kind of like a payday loan, but at much lower interest rates.

The state of California was used to getting bridge loans, a few billion to tide it over until tax revenues start coming in next spring.  Many companies borrow for a day, a week, or a month, at low interest, to cover payroll, for instance.  But it wasn’t always like this, which is why things are so messed up right now.  It used to be, companies kept cash in bank accounts to cover any conceivable expense, because credit was hard to get, even for multi-million dollar organizations.  States would borrow money, but only through bond sales, which were usually long-term instruments, often 20 years.  They had to keep their accounts in the black to cover day-to-day expenses.

Homeowners had savings accounts that often represented a year or more worth of income, to protect against a water heater going bad, or having to buy a new car, or somebody getting really sick.  The only way to get the equity out of a house was to sell it.  But most people had enough in the bank to see them through, so they didn’t need to borrow against what they had paid on their home.  Then, something changed, something which was a fundamental shift in thinking.

When people had spent all of their extra cash, they quit buying stuff that they really didn’t need.  This seems logical enough, but it meant that consumer spending began to decline, which hurt the profits of many big corporations.  In order to keep people buying stuff, an new idea surfaced.  Easy credit.  The credit card.  A homeowner was a sure bet, because their house would be their collateral for their debt.  Enter Monster Card, and its brethren.  In an amazingly short period of time, the United States went from being the largest creditor nation to the largest debtor nation, as easy credit spread from homeowners to big corporations to states.

Borrowing money used to be looked down upon, because good people paid cash.  Little by little, that stigma was erased, and replaced with a belief that we deserved what we wanted, right away.  Instant gratification became the standard operating procedure of not just teenagers, but adults, executives, and elected officials.  Of course, lending out money is a profitable enterprise, so everybody jumped on the bandwagon.  And, an obscure rule of accounting made it even easier.  If someone owes you money, it increases your net worth.  Accounts receivable are counted as an asset on a balance sheet.

The more money that is owed you, the wealthier you are, irregardless of the ability of the debtors to pay you back.  On paper, you can be worth millions, even billions, but not have two dimes to rub together.  Say, buddy, can you spare a billion?  I’m a little short right now.

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