Tuesday, March 10, 2009

The Carney Economy

Recently the American economy has been likened to a giant Ponzi scheme. But, in reality, it has a whole lot more in common with carnival barkers.

Consider the rube, or in this case, the average American consumer. Generally he’s doing OK. He may not own his own home but he has a good job, a working automobile and a comfortable albeit not affluent lifestyle.

The next thing John Q. Consumer knows is that he’s strolling along the carnival boulevard that is the American economy and he’s being enticed by carney barkers from all sides. It’s all fine and good to suggest that he simply ignore the siren songs from these snake oil salesmen. But it’s pretty hard for most of us to pass up a deal that sounds too good to be true.

"Step right up and see the amazing new credit card," calls out one barker. "Consolidate all your other credit card debts on one new fabulous card and only pay 15% annual interest. Plus you’ll earn free travel points that’ll take you to new and exotic destinations."

So maybe Mr. Consumer already has a dozen credit cards and he can resist that guy’s sales pitch. But he’s being bombarded from all sides and some of those other pitches sound mighty good.

"Is your car starting to cost you in unwanted repair bills? Tired of 20th century technology? Well now is the perfect time to trade in that old clunker and treat yourself to a brand new SUV. And with no money down and 0% financing, there’s no better time than today to drive away in the vehicle of your dreams."

Maybe John Q. Consumer has got enough sense to stick with his current vehicle. Or maybe he knows that those "low monthly payments" are not so low after all. But that doesn’t mean he’s immune to the guy in the next booth.

"Watch movies, sports and your favorite shows in amazing high definition on a giant 52- inch screen complete with surround sound and the latest in flat screen technology. Why spend another night straining to watch your old TV when the world of the future is here today? For less than you might think, you can turn your living room into a fabulous home theater."

Pretty hard to resist, right? Forget about the financing charges, the extra required hardware and the new cable subscription fees. How can Mr. Consumer resist the lure of the shiny new toy? Doesn’t he work hard and doesn’t he deserve something for himself?

Perhaps the flashiest carney on the American midway is the home seller. Actually, this carnival sting requires three con men to pull off. First there’s the real estate agent who entices John Q. Consumer with dreams of owning a huge monster home despite his middling salary. He reels Mr. Consumer in and passes him on to the mortgage broker.

The broker then employs the "hard sell" convincing the mark that he can afford a giant mortgage with no money down and initial low monthly payments if he’ll just sign on the dotted line. And then the banker or "closer" comes in to seal the deal and bundle John’s mortgage with a bunch of others to entice some other rubes in another confidence game called derivative investments.

The American carnival midway is never ending. Maybe the mark can resist one or two or even three of these lifestyle sirens. But like the ancient Greek sailors of old, eventually he’ll be lured into the rocky shoals of bankruptcy.

But even then, our average consumer has not escaped from the entreaties of the carney barkers. "Just declare bankruptcy and, before you know it, you’re debt free and ready to buy, buy, buy again."

So how does Mr. Consumer free himself from the enticing traps set by the magicians of the American midway? It’s definitely not easy. After all, unlike a regular carnival, this one never leaves town and sometimes even asks the marks to bail out the carneys when they’ve gone too far. But the solution is basically the same as with any carnival midway; just leave your wallet in your pocket and keep on walking.

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