Markets Rebound, Cash or Credit

After one of the worst week in Wall Street history, the Dow rebounded with a gain of more than 936 points. We are finally getting some good news from Wall Street. The rebound is believed to be a reaction to news that several central banks from around the world including the Federal Reserve will be giving banks that are in turmoil short term funding. The thinking is that by infusing the banks with cash, it will help thaw the frozen credit markets.

Speaking of credit, it has become very difficult if not impossible for people to obtain mortgages or auto financing during this financial crisis. Banks are very skittish at the moment. You know its bad when banks are afraid of lending to other banks. I’m sure everyone is watching and waiting to see if the government’s $700 billion bailout plan will make a difference.

I remember when I was a kid, not many families had credit cards. Credit was for the rich. Back in the day, we use to have a cash market. If you needed a new refrigerator or a new mattress you paid in cash. Credit wasn’t so easy to get back in those days especially for minorities. If you didn’t have the money for something you needed and didn’t have credit, there was this great program that was very popular called “layaway”. With layaway, customers could pick the items they wanted, have a store put it aside with a deposit, usually anywhere from 10-25%. The customer would then be able to make small scheduled payments on the item until it was paid for and then could take possession on it. I can remember lots of stores that had layaway, Lionel Play World, K-Mart, Wal-Mart, J.C. Penny and Sears. Now, you would be hard pressed to find a store that has a layaway plan.

In today’s troubled times, the middle class needs layaway now, more than ever. Perhaps we are going to learn a lesson from the financial crisis and move back to a predominantly cash market. We will buy only what we can afford. We will buy the cars that match our bank accounts and not our personalities. We will no longer be the fast food society of “I want what I want, When I want It.” I think if anything should be learned from this is we need to live our wage and not above it.