Second, make the starting point of the solution the debt relief of the household, not just the institutions.  Maybe it seems like a small step but American households are buried in debt whether it is home loans, car loans, credit cards, student loans or home equity loans. And this debt burden just keeps growing. Fiscal solutions such as tax rebates, though they sound good in campaign debates, will not clear away the debt overhang. And if we bail out the institutions so that they can lend again, but provide little direct help in getting households out from under debt, then we still have a problem.

Nouriel Roubini, in his RGE Monitor blog:

So any unsustainable debt problem requires debt reduction. The lack of debt relief to the distressed households is the reason why this financial crisis is becoming more severe and the economic recession – with a sharp fall now in real consumption spending – now worsening. The fiscal actions taken so far (income relief to households via tax rebates) and bailouts of distressed financial institutions (Bear Stearns creditors’ bailout, Fannie and Freddie and AIG) do not resolve the fundamental debt problem for two reasons. First, you cannot grow yourself out of a debt problem: when debt to disposable income is too high increasing the denominator with tax rebates is ineffective and only temporary; i.e. you need to reduce the nominator (the debt). Second, rescuing distressed institutions without reducing the debt problem of the borrowers does not resolve the fundamental insolvency of the debtor that limits its ability to consume and spend and thus drags the economy into a more severe economic contraction

A similar thought is posted by James P. Pinkerton in Let’s Bail Out Main Street NOT Wall Street. Here’s How.  Pinkerton describes a plan put forth by Mallory Factor, a South Carolina businessman who suggests the establishment of a guaranteed low interest rate of perhaps 3.5%. This rate would be available to home buyers or for refinancers. He calculates that just being able to reduce payments down from a standard 30-year mortgage of 6 percent could gradually release liquidity back into the market. According to the plan, the government would do the buy-down on the interest rate and this would benefit the homeowner first. And only after the homeowners benefit would the banks benefit. Also because this would only be for qualified homeowners, the banks would still lose some money. This is the price the banks would have to pay to be reminded that they can no longer make dubious loans because there will no longer be a Fannie Mae or Freddie Mac to buy these mistakes.

Pinkerton estimates this solution would cost the government $200 billion. Not cheap, but definitely not $1 trillion either.

I would also keep the pressure on lending institutions to return to a fundamental social responsibility that they have – that is to be a good steward of the financial resources that have been entrusted to them by being careful to loan to qualified people. And by qualified, I guess it has to be reiterated that we mean financially and legally qualified as well as of good character. The institutions must also desist from all manner of predatory lending which includes inundating college students with easy credit card offers. (I’ve got two in college.) We should stop trying to sustain a nation of debtors, and develop a nation of wise stewards instead.

We also need to deal with the easy credit habits of the average American household. I know of families that as a part of their long term financial pattern go into Chapter 7 bankruptcy every 6 years just like clock work.  They then build up credit card and other debt all over again. Lenders should use much better judgment  as to who does or not get credit. On the other hand, it is almost farcical to hear financial reporters call the 11% interest rate the government is charging AIG usurous and loansharking when many Americans pay well north of 20% on credit card debt.

Let’s have the solution trickle UP for once from working people to the institutions by bringing direct debt relief to American households, without letting anyone get away with irresponsible debt or credit habits.  Everyone needs to be accountable to meet their obligations. And financial institutions must regain their footing, not by being bailed out, but by becoming much more responsible and accountable to serve their clients, helping the households climb out of debt, and then to make sure that they continue to act as a responsible accountability partner in the future issuance of credit.

The word economics comes from the Greek word oikonomia which literally means the “management of a household.” The fundamental economic unit is the household. Help the household directly and you will help the economy.  The Biblical solution to indebtedness was always very direct and personal, aimed at the individual and the household, not an institution or “system”. (see InsideWork’s Scriptural Roots of Commerce series to learn more about the Biblical worldview on work, economics, and commerce)

Many years ago my wife and I found ourselves in a position of overwhelming debt due to a series of catastrophic events. As these debts mounted, we could not earn enough quickly enough to get in front of debt. We did not declare bankruptcy, but we did manage to restructure our debt to an interest rate that enabled us to take care of our obligations and within a few years we were debt free. If our current solutions included the opportunity for American households to get the sort of second chance we got — and the sort of second chance financial institutions may need in order to restore liquidity to the economy — we might go a long way toward revitalizing Wall Street, Main Street and the streets where we live.

I once heard the story of a father reading the Sunday paper. But his quiet Sunday pleasure was constantly being interrupted by his little boy who wanted Dad to come play.  Finally in a moment inspired by his frustration, he tore a page out of the paper on which was printed a map of the world. He tore the map into little pieces and then handed the pieces to his son as a puzzle. Satisfied that he would now have peace and quiet for a long time, he settle back to reading.

Within minutes he was jarred when his son announced that he was finished.  Astounded, he asked his son how he had finished the puzzle so quickly. His son replied, “It was easy, Dad. On the back was a picture of a man. And when I got the man fixed, then the world was fixed.”

There are other dimensions to the problem. I understand. But here’s a modest starting point with some potential to get us moving toward a more fundamental and ultimately, I hope, a more comprehensive solution.

I was particularly struck by the notion that “without story, there is  no debt.” In other words, debt is not an abstract thing. It really is a story of how you got into debt, what you were thinking to get you to that point, what you are doing now that you are in debt, and whether the story will have a happy or tragic ending. In my mind this squares with the biblical worldview.  The scriptures show us that life is not lists and formulas, but decisions and actions based on beliefs. The root cause of debt — whether it is at a personal, institutional, or national level — is a story about what is believed, decided, and acted upon.

Does what you believe, decide, choose, and take action on lead your life story toward debt or toward freedom?

Herb Schlossberg
Idols for Destruction, Thomas Nelson Publishers, 1983Capital that is not invested is consumed, in one way or another. … A family borrows against the increased equity in a house in order to buy a car is living on capital. A city in which the roads, buildings, and parks are deteriorating is doing the same thing. And so is a business that is not depreciating its machinery sufficiently because accounting procedures and tax laws do not fully recognize the effects of inflation….Capital that is neither invested or spent voluntarily is taxed away and consumed away. When capital is taxed by the state, it is diverted from an investment role to a consumption role….An economy living on capital rather than income resembles a body deprived of nourishment, living off its own tissues and wasting away. But this is not an organism that is starving because of external factors beyond its control. It is, rather, suffering from an infantile inability to discipline itself and provide for its future.

Proverbs 28:19
New International VersionHe who works his land will have abundant food, but the one who chases fantasies will have his fill of poverty.

Barbara Stanny grew up never worrying about money. As daughter to one of the founders of H&R Block, first her father, and then later her husband managed her money and cared for her. Then in mid-life a devastating financial crisis that eventually led to the break up of her marriage woke her from this fairy tale. She came to the harsh realization that Prince Charming wasn’t coming to rescue her, and that she needed to take responsibility for her own financial life. And yet, in spite of the dire necessity to take on this responsibility she struggled with great fear at doing so. She was filled with self-doubt wondering, “If I’m so smart, why am I so dumb about money?”

This is not a book about the mechanics of financial management or investing, though it does provide some guidance on these matters. The mechanics are straightforward but what Stanny deals primarily with is the deeper issue of why so many women are paralyzed at taking responsibility for their own finances. This may be partly a generational issue. Stanny’s father was a clear breadwinner who made all the financial decisions for the family. She trusted him and he took care of her, but he never taught her how to be responsible or knowledgeable about financial management. But it is a relevant message to many, many women today.

The book is divided into three parts. The first section is a very transparent recounting of her story. She describes how she came to the painful realization that in spite of being from one of the most prestigious families in the world of financial management that she didn’t know anything about finances. This powerful section will cause many, both men and women, to see in her story the roots of their own inability to assume responsibility and their own captivity to self-doubt and fear.

The second part of the book outlines the process for taking responsibility by describing six realizations. These insights emerged out of interviews with women from a variety of situations who were similarly struggling. These realizations form a mental and emotional path toward financial responsibility.

• Realization #1: No One Will Do This for Me
• Realization #2: Learning Follows a Curve
• Realization #3: All the Answers Aren’t Out There
• Realization #4: There Are No Secrets
• Realization #5: Risk is Not a Synonym for Loss
• Realization #6: I Don’t Have to Do This Alone

The final section describes a final realization, the power of a financially responsible and savvy woman. Such a woman can live purposefully through her entrepreneurship and philanthropy to make a difference.

Though written for women, Stanny’s message should resonate with men as well. With increasing pressure to manage finances well in the midst of dizzying complexity, it can be paralyzing to be proactive in these responsibilities. For couples, this book is an excellent conversation starter for discussing how to prepare both husband and wife for these responsibilities. Experts in estate planning all too often see wives not prepared for the financial management of an estate, no matter how big or small, when the husband dies. And it is a valuable read for parents and their children to help young people be better prepared to assume the duties of their own financial management.

With some experts talking about the possibility of $5 or $6 per gallon gasoline prices becoming the new norm in America, I thought it might be interesting to throw some numbers out and see how much of your working life might be spent just to pay for having a car.

*The mileage above was for commuter miles of about 800/month. In reality, many folks could easily double that mileage to 1,600 miles per month if you add in all your personal trips (shopping, soccer practices, etc.).

Conclusion … a minimum wage worker could work the entire year just to pay for the cost of owning a car.

A $5.15 minimum wage would compute to $4.75/hour after 7.65% FICA/Medicare deduction.

Even assuming no federal income tax withholding and no medical insurance withholding, that $4.75/hour x 160 hours/month x 12 months would come out to $9,120 after FICA/Medicare deductions.

And of course that doesn’t account for food, rent, clothing, utilities, phone, medical insurance, school supplies, and everything else that families need to survive.

The growth of cheap mass transit options and super fuel efficient vehicles would certainly help, but like ever increasing medical costs and housing costs and utility costs, it seems almost every major trend in America is working against the average minimum wage worker. Where’s the light at the end of the tunnel?

David raises compelling points. Though minimum wage may not be adjusted any time soon, as employers we may need to consider the economic impact on these workers. I understand that if you are a small business owner that even you are struggling. But we all need to try to move beyond what we are just legally obligated to do toward what we must do because it is right and good to do. Whereas there may be no easy answers, the Scriptures tell us that we are to be characterized by faith, hope, and love. And the solutions to this and all the complex challenges of our lives can emerge as we ask ourselves, "How should people of true faith respond to this? How should people of real hope respond to this? How should love respond to this?"

Share with us your thoughts and ideas.