What has made America the land of dreams for the last 50 years? What has separated America from the rest of the world? These questions have intrigued me throughout my life. I read an interesting article in Wall Street Journal the other day which gave an interesting viewpoint. It said the biggest reasons for living the American dream especially after 1970's has been " credit “or " leverage ". Unfortunately these two words we, the Americans, have started to fear the most these days.

America has always been the land of innovators. However, for an innovation to come to life, it is imperative for such businesses to get access to cheap credit. This is where American banking system came to help America. Banking system helped start these businesses. Since these businesses got cheap loans, they grew. They grew and created ripple effect throughout the industry and life of middle class American population. It is a well known fact that about 70% of US population is employed by small industries. Therefore the jobs of around 70% of US population are because of American Financial system.

Some of these advantages were poorly exploited by some corrupt CEOs and their subordinates. When the system was designed, it didn’t imply that banks / loan providers should issue loans sizing to the range of few hundred thousand dollars to individuals making 20-30 thousand dollars per year or the people who have no or very low credit history. Now since such companies have collapsed, they are blaming it on the system itself. People are blaming the entire financial system for their problems and question each and every tax payer dollar going to companies which became victim of the poor policies that were put in place by their heads. To make matters worse the US government as part of populist measures in completely targeted on putting complete regulations on system. Just last week The House of representative passed the Malooney bill with 17 amendments. The bill according to many industry insiders is going to kill the entire revenue streams of a credit card industry. Last quarter BAC (Bank of America) made 1.7 B dollars loss in their Credit card division and Chase (JPM) lost around $540 million. In such environments if the government attacks the primary revenue streams, it is essentially killing the whole industry. Industry insiders are predicting that if this becomes a law soon, getting a credit card would become a luxury for people with good credit history only. This would make people switch back to buying with cash and debit cards. This would in turn adversely affect the sales of electronic stores like Best Buy, furniture stores like Pottery Barn. Government is also putting limits on the NSF fees charged on checking accounts. Isn’t that a little bit too regulatory? Rather than educating people on doing the right thing, government is rather choosing to change the parameters of the game itself, especially when these parameters helped reach the country reach the position it enjoys currently on the world financial map.

If all these regulations go through American finance industry would again go back to 363 models of 1950's. Meaning get a deposit at 3% give it to a huge industrialist at 6% and go back to play golf at 3 pm :) Al though it sounds awesome on paper, it is a curse for growth that we have experienced in our entire life time. There would no longer be small businesses as banks would not be able to provide loans to such industries. Hence there will be decline to innovation and American dream will start to deteriorate.

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