Tales from the 20th Century: Borrowing Trouble

Year: 1957. Scene: A carriage house on New York's Murray Hill, converted to serve as the offices of a small ad agency, The Merrill Anderson Company. The proprietor, Merrill Anderson himself, lives in an apartment on the top floor.

A young job applicant has just submitted three sample ads for Mr. Anderson's consideration.

"These two will do," he says. "Banking by mail and saving for college; we can use them."

The young applicant had hoped to bat three for three. "What's wrong with the third one?"

Mr. Anderson shook his head. "Vacation loans? We can't tell a bank to run an ad that encourages frivolous borrowing. It wouldn't be moral."

* * *

What a difference almost half a century makes! Plastic cards and home-equity loans have made credit available to anyone, usable for any reason. Since 1990, income for the median American household has risen a respectable 11% after adjusting for inflation. But median household spending has jumped 30% and now exceeds median household income. How can that be? Median household debt has leaped by 80%! Online Wall Street Journal subscribers can read more here.

Even the rich are borrowing, as noted in an earlier posting. That's why private bankers extend credit as a way to gain new wealth-management clients.

Borrowing, after all, is one way the richer get richer. Borrowing to buy more real estate. Borrowing to buy hedge funds that are already highly leveraged. Thank goodness real estate always goes up and hedge funds always produce stellar returns. Were that not the case, some affluent investors might find themselves poor again.

They might even need vacation loans.