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July 12, 2010

Agency Capitalism

One of the reasons we are struggling with our national debt in this country is because of the concept known as "agency capitalism".  Under agency capitalism, people turn the responsibility for their entire financial well-being over to someone else.  

One of the most glaring examples of agency capitalism is the social security system.  When social security was created, it was never intended to be a person's sole source of income during retirement.  And yet, 50 years later, 22% of social security recipients (10 million people now; 18 million when the boomers retire) have no other source of income.

Another is extended benefits for the unemployed.  We throw money at the problem without also spending money to help redirect the unemployed into more marketable vocations.  And so, continuing claims just keep getting bigger and bigger, despite the fact that there are jobs going unfilled in the areas of our economy that require greater education.  (Unemployment amongst the college-educated is below 5%)  Kids don't pay serious attention in school because they don't have to walk past a sea of beggars to get to class in the morning.  They don't see the consequence of failing to apply themselves, and so they don't.   

Government is necessary to help people create a framework in which to live together peacefully and solve common problems.  But we have become way too dependent on our government to solve our personal problems and provide for our most basic needs.  And this is a very dangerous place to be.

The people who founded our country weren't just free and brave.  They were also self-reliant and adaptable.  You took care of your own and adapted rapidly to changes in your environment or you starved.  

Now people look to other people to solve their problems.  They blame other people for the fact that they aren't better off.  Their solution is to whine and gripe instead of adapting.  They think living in America should automatically entitle them to food, shelter, clothing and access to ESPN.  

We need to have fewer people adopting this kind of behavior, not more.  The ranks of the people who are neither self-reliant nor adaptable is growing exponentially.  And this is the primary reason why our deficit is blossoming and our national solvency is in jeopardy.  

The pain we are experiencing now will be nothing compared to the pain we will feel in the future if our solution extends, enables, and encourages personal dependency and inaction.  We need to suffer more, not less.  We need to suffer enough to change.








Credit scores tanking

NEW YORK – The credit scores of millions more Americans are sinking to new lows.

Figures provided by FICO Inc. show that 25.5 percent of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders. It's unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.

Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery.

"I don't get paid for loan applications, I get paid for closings," said Ritch Workman, a Melbourne, Fla., mortgage broker. "I have plenty of business, but I'm struggling to stay open."

FICO's latest analysis is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit score categories in the past two years. Before the Great Recession, scores on FICO's 300-to-850 scale weren't as volatile, said Andrew Jennings, chief research officer for FICO in Minneapolis. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com.

More are likely to join their ranks. It can take several months before payment missteps actually drive down a credit score. The Labor Department says about 26 million people are out of work or underemployed, and millions more face foreclosure, which alone can chop 150 points off an individual's score. Once the damage is done, it could be years before this group can restore their scores, even if they had strong credit histories in the past.