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Embracing thrift

| Sunday, Oct. 14, 2007

Countrywide Financial, the nation's largest mortgage lender, has a curious new idea -- or, more precisely, an old one.

No longer will it use wads of Chinese cash recycled through Wall Street to make subprime loans to unqualified borrowers. Instead, it will take in deposits from small savers and lend them out to people who might actually repay them -- just like that humble thrift institution president George Bailey did in "It's a Wonderful Life."

Imagine: a bank that promotes thrift! This could be the start of something big.

Writing recently in the American Banker, Eugene Ludwig, a former comptroller of the currency, advised financial institutions to stop relying "on the easy money that comes from wholesale funding" and to concentrate instead "on harder-to-get core deposits."

How quaint. Remember when banks actually tried to instill the savings habit by going into schools and helping kids set up small passbook accounts?

Today, the first experience most younger Americans have with a bank comes during freshman orientation at college when they come across a table laden with giveaways and credit-card applications.

This return to thrift comes none too soon. Not since the Great Depression have so many Americans lost their homes in one year -- and we're not even in a recession, at least not yet.

We're on course to see 2 million foreclosures in 2007, afflicting one in 62 households. That's a 67 percent increase from 2006, according to RealtyTrac. The Federal Reserve's decision to cut its benchmark rate by half a point, while widely praised on Wall Street, will do little to stop the slide.

Also not since the Great Depression have Americans saved so little. Even with unemployment at historically low levels, Americans spent more than they earned in both 2005 and 2006 -- and charged the difference.

Household debt, not including mortgages, now eats up nearly 15 percent of disposable income -- more than food and gasoline combined. One in seven families is dealing with a debt collector. Children today are more likely to live through their parents' bankruptcy than their parents' divorce.

Americans' stunning lack of savings not only brings personal tragedy but also is causing the dollar to plummet against all major currencies, jeopardizing our economic growth and threatening the financial system worldwide.

What's going on• No doubt, some of us like to shop too much but it's also true that the "fixed costs" of middle-class life have soared.

Meanwhile, not only does the government itself borrow as though there were no tomorrow -- primarily through unfunded health and pension plans -- but it promotes what David Blankenhorn of the Institute for American Values calls "anti-thrift" institutions. To wit, 41 states plus the District of Columbia and Puerto Rico run lotteries; 11 states encourage casinos.

It's time to return to the old-fashioned virtue called thrift.

Thrift is not being cheap or stingy. It is a wise use of resources. It is abhorrence of waste, whether of raw materials, time, energy or money. It is conservation.

Once upon a time to conserve money, working-class men and women banded together to create "thrift" institutions. Before these institutions were deregulated and taken over by the fast-buck crowd in the 1980s they provided a staid but reliable vehicle for building a nation of "freeholding" middle-class homeowners and small-scale entrepreneurs.

Most Americans understood, until the triumph of the anti-thrift institutions, that their own freedom from wage slavery -- and, indeed, the civic health and wealth of the republic -- depended on the savings habit and the widespread ownership of unencumbered small properties that it makes possible.

Reviving the American thrift ethos won't be easy; it probably will take at least a generation. But we can take some small steps now that would make saving easy, automatic and frequent. Our goal should be to generate new savers as well as new savings.

Regulators should encourage more community-focused banks, credit unions and thrift institutions. These can resume their historical role of promoting thrift by helping customers become savers as well as (eventually) homeowners and small-business owners.

If you're an American born in the 20th century, thrift probably strikes you as a musty, downscale word -- reminiscent of used clothes, aged relatives who wrapped their sofas in plastic or perhaps the grandmother who saved Green Stamps.

But it's worth remembering, as did generations of Americans struggling up from poverty and privation, that thrift is still the essential virtue that makes the American dream possible.

Ray Boshara is vice president of the New America Foundation. Phillip Longman is a senior fellow there. They are writing a book on thrift and the American middle class.

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