Impetus for our Economic Woes – "Free Money"

Subscribe to Elliot's BlogAbout 10 months ago, I wrote a  post about people who were “lucky” enough to receive lines of credit by accident at K-Mart. While everyone is pinning the credit problems the country is facing on Wall Street greed, I think the blame needs to be shared. I believe this is a good illustration about how Main Street needs to share the blame with Wall Street.

“‘Free Money!!!’ was what some Wauwatosa, Wisconsin residents were yelling as a Kmart computer glitch caused all credit applicants to be approved for lines of credit between $850-$4,000 this past weekend.
So many people got excited about the available credit that the store ran out of applications, and someone was selling applications from another Kmart for $20 in the parking lot. From an outsider’s perspective this is both sad and foolish. The sad part is that people were crazily exclaiming “free money” simply because their credit applications were approved. The foolish part is that these people somehow believe credit is “free money.”
As we have been learning, the United States economy is facing some difficult times due to an abundance of companies giving mortgages, loans, and other forms of credit to undeserving citizens. Sure, the reward is much greater for these higher interest borrowers, but the risk was too great. It’s clear that Americans view credit as something other than what it is.
Marketers jam our mailboxes with credit applications. Telemarketers call us and offer us lines of credit over the phone. Department stores practically beg us to apply for a card to save 10% on all purchases we make that day. It’s about time we become responsible for the credit problem and not continue to enflame the situation.
As corporate citizens, we need to think beyond the next quarter or fiscal year. We need to realize the impact of our decisions and how they will impact us down the road. Maybe denying high credit risk borrowers is a bad business decision today, but doesn’t it make sense?”

Elliot Silver
Elliot Silver
About The Author: Elliot Silver is an Internet entrepreneur and publisher of Elliot is also the founder and President of Top Notch Domains, LLC, a company that has closed eight figures in deals. Please read the Terms of Use page for additional information about the publisher, website comment policy, disclosures, and conflicts of interest. Reach out to Elliot: Twitter | Facebook | LinkedIn


  1. How dare you Elliot, there is no such thing as personal responsibility because we have no free will. We are entitled to have everything we see on TV because its our right! Government should and will pay for everyone. Simply tax the rich and make them pay their fair share. That will fix everything. Socialism is here to stay, everyone is the same, no one is better or richer than anyone else. After all, that is fairness.

  2. Fantastic post Elliot. I wish more Politicians and government “leaders” would put it as well as you just did. A sizable contingent of people share your sentiment on this topic. There is an epidemic mentality of entitlement that continues to spiral out of control. I believe in the free market economy and the capitalist engine, but they must be closely controlled by tight regulation because of the inherent weaknesses of human nature.

  3. Elliot,
    In that same line of thinking, we are now going to bailout those credit arms essentially saying: “you made a mistake and average Joe taxpayer is going to pay for it”. Credit is and always will be a very dangerous liability. In the short term it would hurt not to bailout these banks and Wall Street, but just think… two weeks ago we had to have a bailout immediately or the US economy was going to collapse. It took almost two weeks for the congressional approval and we didn’t collapse…. interesting. Of all people, no credit hurts my industry the most, being a builder, the clients that I can find have to have at least 25 – 30% down to build a home now, which is probably what they should have had in the first place.

  4. “Maybe denying high credit risk borrowers is a bad business decision today, but doesn’t it make sense?”
    Elliot, I’m a little confused by your argument that Main Street is to blame. By Main Street do you mean “Joe 6-Pack” (the individual who applied for the credit) – or Kmart, the corporation that approved the credit?
    I completely agree that individual responsibility and judgment is a factor in the current economic spiral. But as your quote above indicates, ultimately it is these large corporations and institutions that are extending and approving irrational credit out of a pure profit motive.
    To me this stinks in the same way that big tobacco did. A systematic, intentional misleading of the consumer.
    I guess I’m feeling particularly conspiracy theorist today – but was this Kmart fiasco really a glitch? These credit offers and shady mortgages are designed to help people to fail.
    If you feed your kids candy they grow up craving to candy.
    Sorry for the rant.

  5. Elliot,
    Although I agree a lot of people are solely blaming Wall Street I believe your example is simplifying the situation. The US banking system is ridiculous. We have 1,000’s of banks who compete to get business and feed on packaging credit cards, mortgages and auto loans to sell to investor worldwide. The competition and high returns that have historically been available for bad or poor credit loans are way too high for any private enterprise to ignore. Banks are private institutions in this country and since they number in the 1,000’s the only way to continually improve numbers is to issue more and more credit – lowering credit standards or structuring creative financing vehicles (such as the option arm loan) is the only way to do this in massive proportions. Banks must continue to compete to survive. What’s happening now is far greater than an issue of “free credit” at K-Mart. Let’s divide America up
    In my opinion you have 3 groups
    (small group) – people who are wealthy and could care less about credit
    (main group) – people need credit to combat soaring living costs which continue to chip away at household budgets. Almost any person on a fixed income is slowly getting destroyed in this country. Cost of gas goes up $40 a week – that’s – $2,200 a year – assume a $40,000 salary – the citizen needs at least a 5% raise next year to cover just gas.
    (dumb group) – I agree that the “free credit” at K-mart example is ridiculous but its far from the real problem. A large part of our population are morons and will never learn and will always take something for free but with 300 million people it’s pretty obvious we will have a lot of clowns. There is nothing you can do with these people so many K-mart examples do and always will exist – as will get rich schemes, late night infomercials, etc…
    I hear people complain all the time about how people should take responsibility and we should – IF WE KNOW THE DIFFERENCE. That’s the issue I have – you and I both know banks are private institutions and its up for us (the consumer) to find the best deal but how many people:
    Were never any good at math?
    Have no idea what their credit report means?
    Believe the banks would never give them a loan to hurt them?
    Don’t get me wrong – I’m not a sponsor of saving the people who abused the system but this is far more than that. Banks – regulated, non-regulated, private or federal – have a responsibility that’s far greater than their balance sheet. Banks admit the “option arm” loans were bad but instead of helping consumers they are helping themselves.
    Where in the bailout bill did it require banks to help existing homeowners modify the terms of the mortgage?
    Almost every homeowner who put 20% down on a house in the last 4 years has NO equity so will a bank modify the mortgage at this loan to value?
    American express cut credit lines to almost 50% of their cardholders. If you had a $10,000 credit card and owed 4,000 – you may very well now have a lower credit score and not able to get financing since you are maxed out. How many people actually know this?
    The sad thing is most people don’t care.
    because most people do not understand the credit industry and even the basic elements of credit. All they believe is if they pay their bills on time then the bank will give them a loan. 20 years ago this was the case. Your branch manager could sign off on a loan and you were done. Now, it’s all centralized and many vice presidents even have no signing authority to make a loan. The personal element is gone.
    When was learning about credit ever a requirement in school – even college?
    Remember, I’m not disagreeing with you but examples like above only point out very small examples of credit abuse that will always be there – in a good or bad economy – the blame needs to lay off both main street and wall street and we need to focus on helping people find solutions to their problems and establish a responsible banking system that has “common sense” lending, principals and a duty of responsibility to its customers.
    But of course, this will never happen 🙂

  6. And they are doing it again. New spots popping up all over TV. This one is morally wrong:
    WellsFargo fresh with new cash from stealing Wachovia decides to target reverse mortgages to elderly. They are perfect marks right now. They had planned to pass the house on to their daughter but now their retirement accounts are low, medicare is changed, pills are so expensive- selling the bank their house seems all too good of an idea. So this old couple with no debt gets into debt because of the way banks mismanaged their savings. The bank ceo makes money, Buffet makes money, all the consumption this money in their hands creates makes money. Guess this is what they mean by “opening credit lines.” No wonder the 90 year old with the 30 year mortgage shot her self.

  7. Okay, so there are simpletons and morons running about trying to get a few hundred or thousand dollars on credit to get some things to improve their status in life, whatever or however immoral that might be. Blame the economic collapse on them…
    Is this the cause of our economic collapse? Ummmm… nope. It’s more insidious, but it’s great to blame it on the great unwashed of America.
    Ever see how many million dollar homes that line both the east and west coasts of the USA? Tens of thousands. Most people who made riches off investing in Wall Street, and who have smartly figured out how to “game the system”, which of course has been “loosened” by banking and financial lobbyists in the last decade, are not really going to hurt from this “new economy” situation. LOL They’re flying high, and their “boy in the White House” has made his last Great Con. Of course, GWB didn’t design it, his handlers did.
    It’s the raping of America, and it’s so obvious to me I’m dumbfounded more Americans can’t see it.
    Here’s the simple steps to the ruination of our country since 2000:
    1) Get a dumb president in office in 2000 (GW Bush), using “insider help” from a prominent daddy (G H W Bush) who was first a millionaire oilman, then a U.S. Representative, then the chairman of a Houston bank, then an Ambassador to the UN, then the Director of the CIA, then the VP of the US, then the President of the US. Make sure a brother is the governor of a state (Florida) that can “fiddle with the election results”. With this incredible force of “inside deal makers and manipulators”, they pull off the strangest election win in American history. Next, figure out a way to fix the dumb new president’s 40% approval rating.
    2) Get a smart and sly VP for the dumb president. Even though this new VP had to resign as CEO of one of the largest corporations in the world, Halliburton (Dick Cheney), this VP has a mile-long list of connections and DC insider knowledge that few can beat. He knows Washington inside and out. He denies access to his thinking, his meetings, his people. Enron collapses, along with a few other companies, and the Prez and VP escape “the connection”. The Public just shuffles along about their business.
    3) Act dumb, ignore FBI warnings, see FAA reports of airport suspicious activities to go unanswered, Visa “infractions” of mindboggling proportions, all easily pointing to coming terrorist attacks. Then when the attack starts, look as if someone just pointed to you and said “you’re live in one minute, the Con is on”. Then sit in a kindegarten class staring blankly for seven minutes while the WTC is burning, and allow just one commercial flight removing Bin Laden family members, while all other flights are grounded. Make sure NORAD is “gone”, involved in an “attack simulation” wargame, limiting jetfighters the ability to protect the nation’s largest cities and government buildings. Then title the attack “9/11” and use it for political gain. A nice sound bite. “Nine Eleven”. Evokes sadness and fear. Make sure both Twin Towers collapse exactly like professional demolitionists would destroy a high rise. Then hide all news coverage of why “building #7” was purposely blown up — the building coincidentally housing all sorts of IRS, CIA, Govt, Financial information. (Don’t take my word for it, look it up)
    4) Use 9/11 to inhibit the U.S. Constitution. Use it to scare Americans for years, allowing further encroachments on their rights. Call the “anti-terrorist” bill to allow this hideous farce on Americans, the “Patriot Act”, which helps label anyone who opposes it, a “non-patriot”.
    5) Create false reports of WMD’s to scare Americans to lose focus on the mythical good buddy of the Bush Family, Osama Bin Laden, and instead focus on that bad guy, Saddam Hussein. Go to war in Iraq, and pose in a jet on a carrier saying “Mission Accomplished” less than six months later. Then put American servicemen in the position of protecting fuel transports for Halliburton, which, oddly received a no-bid contract to handle the “rebuilding” of Iraq. Ironically, today, five years later, Iraqis say that their lifestyle conditions have fallen below what Saddam had in place. Electricity maybe an hour a day, dirty water, no trash pickup, blah blah. Halliburton has made over $30 billion in war profiteering. Cheney is grinning ear to ear.
    6) Spend $10 billion a month in war profiteering and nation-building instead of allowing that money to be appropriated for building American’s infrastructure and alternative energy. Point the finger at “liberals” who want to “give away taxpayers’ money” for “entitlement programs” when discussing new programs to create jobs. Give tax breaks to major corporations outsourcing their work to cheaper labor. Bail out banks, insurance companies, car manufacturers, farming, investment companies and others. Forget about the average American taxpayer.
    7) Spend billions of dollars on useless and unused products, services and materials to “rebuild New Orleans” after a devastating natural disaster. Take your time. Give the money to Houston-based companies. Let New Orleans fester even three years after the disaster.
    8) Now that your time as the most evil president in American history is almost over, and your approval ratings are the lowest of any president ever, release one more trick on the American public, and one that will again enrich the pockets of the richest. Since it looks like Barack Obama, the populist, may win the Presidency, SUCK OUT ALL POSSIBLE BUDGET FUNDS THAT COULD EVER BE MADE AVAILABLE DURING BARACK’S TERM FOR ANY FEDERAL PROGRAMS THAT HELP THE MIDDLE CLASS AND POOR. How to do that? Pose an amazing and unbelievable failing of the investment and banking community, where all the richest of the rich, the money handlers, the creme de la creme in investment profits, are scrambling to make as much money possible before the “new guy who represents poor people” takes the oath of office.
    And this is all just fantasy. Of course, nobody who knows how to make money manipulating the capital system we Americans depend on, would do this before the most crooked president leaves office. Oh, and do you think his dad, the ex-CIA director, has any connections to keep the facts from the American public?
    lol. Sad thing, democrats voted for the bailout, just like they did for the Iraq War. Why? They know they’re going to win in November and none of them want a screwed up economy that the Republicans will blame on them. Meanwhile, the rich WILL get richer, and the Middle Class are paying for it.
    It’s all a big chess game, people. Take a guess who the pawns are…

  8. Alan made many great points.
    The key reason we’re in the mess we are right now though is Fannie and Freddie were cooking the books and were protected by Congress pushing them to make as many subprime loans as they could to the low income sector, because that’s where the loan shark interest rates could be made and Wall Street was making a fortune securitizing Fannie’s and Freddie’s outrageously predatory loans and selling them to investors.
    All you have to do is follow the money trail and you’ll see where all the hundreds of Billions that were made over the past decade went and it all leads to Wall Street.
    And now the most outrageous part of this mess is, these same greedy conivers on Wall Street are going to make another load of money managing Paulson’s bailout plan.
    And let’s call what happened to the credit markets what it really was. The banks and investors held a gun to the politicians heads and said behind closed doors you either let us dump this toxic paper on the taxpayers or no more credit.
    And if anyone thinks this bailout is the end of the free handouts to the banks and Wall Street, guess again. They’ll need Trillions to get the system working again, not billions. And in 2 months we’ll be hearing this pitch all over again.

  9. First to Jblack,
    “We are entitled to have everything we see on TV because its our right!”
    Thats Bullsh.. ! If you dont have the money or the income then you are not entitled to anything. You are just one more of those sorry people we have to bail out, with our taxes!
    Elliot, Owen ,Kevin and Alan have made very good points.
    I say, if you only have one creditcard that is maxt out and it has been maxt out for weeks or months then HEY ! there is nothing to think about. It means i cant afford more credit, I cant afford the 42 inch Flatscreen TV or the NEW SUV.
    It’s that simple, what is there to think about? If you dont have at least that math, then there is specialy nothing to think about. Because you dont have a job to make any payments.
    People have not been responsible for them selves, they learnt to live on credit from there parents, friends, Grandparents and so on.
    Ofcourse, banks and creditcard company’s are going to loan you as much money as they can. That’s how they make money.
    Believe this or not, this bail out is going to cost your Grandchildren. This is going to take 20 maybe 30 Years until the complete problem is solved, if it is ever solved.
    Why? The bail out is not the final solution, it’s just pushing the total collapse maybe a few months or years down the road.
    At the end its always going to cost the average Joe, the guy that pays his taxes, the guy that pays his bills, they guy that turns a penny twice before spending it.
    There are hard times coming, be ready for them.

  10. Duane,
    You must learn to recognize extreme sarcasm when you see it. Will try to be even more obvious next time, but not sure yet how I could.

  11. jblack,
    I already thought ” Another cracked up guy and then on this blog!”
    Sad thing is, there are individuals which realy have the opinion you described.
    Thanks, for not leaving me in the dark :-))

  12. Owen – “WellsFargo fresh with new cash from stealing Wachovia” – they don’t have Wachovia yet, and paying $6 per share v.s. $1 per share seems like a better deal to me for the Wachovia folks.
    Stephen – Not sure what 9/11 has to do with a post about the current credit crisis, but it sounds like you want to blame bush for everything. This is a problem with roots on Main Street, Wall Street, with BOTH parties in congress, and probably the least of all with the president.

  13. Yeah Stephen , that’s right! And Bush has been pulling all the strings to discredit you; you didn’t mash all those keyboard buttons that have made yourself look so silly on so many forums, the Bushes orchestrated all of it! The conspiracy has us all its evil grasp! There is no escape! Can’t anyone else see it!?!?

  14. In my opinion it all planed. The richest always earns on all crises cause they know what’s happening, they are helping to push it and they overtake weaker that suffer loss.
    As to morgages, americans have bought thier weekend houses, paid interest for years and now they have lost it. Bankers will have their 700 billions from government – 700 billion profit as all their loses were backuped with years of profit.
    And those who’ve got more $ then usually will buy out all those lost weekend houses (Saudis have more $ then ever and they are starting to buy skyscrapers which have smaller value these days). Guess whos friends are Saudis? Boeing, Lockeed martin have their contracts due to Iraq and Afganistan, Cheney got free oil for Halliburton, everybody is happy (the rich ones).
    When there are americans that lost their houses, they don’t pay mortgage anymore so in few years, they will have more money to spend and feel richer so they take another mortgage and buy weekend house. With new (same as before) weekend house, average american has same property as 10 years before. So 10 years of daily work brings them no more property.
    This cycle works like clock. There’s always some “bombing” to make government spend more, and push new smaller or bigger crisis.
    Most americans think this is just conspiracy, but it’s caused by huge propaganda of US media which are in control of people who runs that country.
    Americans see Russia attacked Georgia but rest of the worlds media (that aer not under control of Murdoch and others tells that Georgia attacks Ossetia and that is big difference.
    Unluckily US citizens are behind media firewall and plenty of them are consumer attitude in spending and in recieving information. So many of them don’t search for different sources of information, they just consume what Fox news brings them.

  15. Wow, I don’t think I’ve ever seen so many in depth, content rich replies to any of your post before. You hit a nerve.
    While I haven’t read all of them, but rather perused them, I have a few comments.
    Was it the Who in their classic album “Who Are You” said “the new boss is the same as the old boss” meaning I believe that power is always a commodity that is present and loans itself to the highest bidder. It’s fungible and knows no boundaries, national, religion, or moral. It just goes with the flow.
    Our country seems to have institutionalized wealth and as an entitlement, not as achievement to be earned.
    The sanctity of the contract now seems to be jeopardized as 1st lien holders in the motor company’s now come last, subordinate to the weakest links in the financial hierarchy of a corporate financial structure, at least as it’s defined in the US laws of commerce.
    Increased government surveillance in all our affairs including the internet. There are new laws now being concocted controlling internet traffic flow as well as it’s content.
    And this isn’t a political harangue, but both parties in their quest for power are salivating over the internet, our last resort to freedom of expression. To wit, our old friend george bush began it with Mr. Martin of the FCC who in his ruling over Comcast, actually fired the first salvo over control of the internet content.
    i’m sorry to see the the new administration, or at least Congress has it’s eyes on the internet control as well.
    I’m a minnow in this but from what I know the internet in Washington is not really represented well by lobbyists, who as we all should know write the laws, that our Congressman rarely read. Did you know that not one Congressman even read the latest 700B stimulus plan that they voted for. yeah, not one read it and the proof is that it was sent to them by email 11pm before the day of it’s vote and enactment in the form of a pdf where it couldn’t be searched for specific content as t its specific articles.
    Wow! Went a lot longer than I thought, but hope i threw some bread on the water. One thing is for sure, as influence counts, the internet world, particularly domainers, better lawyer up in Wash DC, or else.
    The internet is truly the last bastion of free speech. I’ll probably misspell (I’m sorry and not state precisely), but I believe it was a Catholic Cardinal Neuweiler in Germany who said those famous lines. “When they came for the communists, I said nothing; When they came for the Trade unionists, i said nothing; when they came for the socialist I said nothing. Finally when they came for me, there was no one left to defend me.
    We can’t let the internet be taken or compromised as it is truly our last venue of freedom.
    After this, I hope to be able to vent more.


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