Most beginning economics textooks will say something like "markets work well for many things, but not for the environment, because there is no way to internalize the costs of pullution."  But is that really true?  Is there not a way to internalize the costs of pollution into doing business, or have we just chosen not to?

First of all, we need to discuss what it means to "internalize costs."  Let's say I want to build a car to sell and make a profit.  I believe I can sell the car for $20,000, so to make a profit, I have to be able to build it for less than that.  So I add up all my costs, rent, wages, materials, etc, and if they come to less than $20,000, I know that it's worth it to build the car.  Let's take just one of those costs, say, steel.  I know that if the cost of steel is below a certain price, I will build the car, and if it is above, I won't.  But what can we know about the cost of steel?  Well, if the cost is high, it's because other businesses are buying steel for other products that they expect to be able to sell at a profit, even with the high cost of steel.  If it's low, it's because other businesses don't think that consumers want to buy the things they would make out of steel for the price they would have to sell it to make a profit, even with the low cost of steel.  So in general, we can say that if I can build a steel car and sell it for a profit, it is because society generally values using the steel more for the car than for other things it could be used for.  Because my profit relies on the cost of steel, that is, that I have "internalized" the cost of steel, markets have done a pretty decent job of applying steel to it's best use.

The problem, though, is that when I fire up my coal factory to make that car, I don't have to pay anybody to send the smoke out.  Regardless of whether or not I send out dirty smoke, killing my neghbor's farm crops and causing asthma in children, my profits stay the same, because I never see a price for that.  On the contrary, if I am a good soul and choose to develop smoke filters and other means to reduce my pollution, my profits will most likely go down due to the added expense of developing that technology.  I will be able to compete less well with those carmakers that take the easy way and do pollute, and eventually, if I can't cut costs somewhere else, I will go bankrupt.  New regulatory ideas such as carbon credits or cap and trade systems are attempting to deal with this issue, but they still run into problems determining the true costs of pollution.

So how did we get to this point?  Is it true that it is impossible for free markets to deal with pollution?  To understand this, we need to go back more than 150 years, to the beginning of American industrialization.  In the early 1800s, people were not concerned with pollution on the grand scale, as we are today, simply because they could not imagine that a few coal-fired factories here and there could ever possibly have global consequences.  When people did worry about pollution, they did not cosider themselves to be environmentalists, per se, but were concerned with simple property rights violations.  For example, a farmer would see his haystacks go up in flames from sparks from a passing train, or see his fruit trees blighted by smoke from a nearby factory.  He was not concerned the harm to nature so much as the harm to his livlihood and his ability to feed his family.

And early on, the solution was simple.  Go to court, show a violation of property rights, and get compensation and an injuction against further violation.  The factory owner the had a number of options.  He could develop some new technology to limit his pollution, he could buy up a whole lot of land where he had no neighbors to offend, or he could simply work out a contract with the farmer to pay him a sum of money that would convince the farmer to let him pollute.  In any case, his expenses would go up and be passed on to the consumer, and any competitor that found a way to produce the produc without pollution would see lower costs and higher profits.

Unfortunately, not everyone saw this as a good thing.  Nearing the middle of the century, it was feared that America would fall behind the rest of the world, and that the way to stay competitive was rapid industrialization.  Anything that stood in the way of this was seen as risking American prosperity and dominance, and the rights of the polluted were abandoned for the "common good."  Accordingly, any incentive to reduce pollution was removed, and while we did see an enourmous increase in the standard of living in many respects, it came at the cost of the environment.

So, today, as we try to balance our comfortable lifestyles with our environmental concern, we need to ask some important questions.  Is it true, as the economists recommending carbon credits and other plans say, that there is no way for markets to internalize the costs of pollution, or have we simply chosen not to let them?

Do you use credit / debit cards, in your home business? Then you too may be a victim and just haven't discovered it yet .

I first became aware of this situation back in December of 2006 when I got a call from one of my credit card companies, asking if I had authorized a $300 charge against my account. My answer was an emphatic "No". I was asked to look at my statement and get back in touch with them. I did. I opened my statement and what I saw astonished me. Two companies had been charging me $9.99 and $12.95 a month for nine months without me catching it. But then they got greedy. One of the companies tried to get $300 at one time. That was their mistake. Greed.

I wonder how much more money I have lost to other scammers that I don't know about?

.Do you always read the tiny legalize "terms of service" agreement that these so called "reputable companies" provide? Most don't. Many of these are companies with household names that you trust, and have done business with them for years. You assumed they are totally honest. They have earned your trust over the years and in doing so have made it easy to rip you off.

Here is one way they do it. They advertise a product or service for several weeks at, lets say $34.50. You see the ad over and over, and would like to order the product or service, but not at $34.95.

Then one day you see the ad with the $34.50 overwritten with a big red "Now FREE" being advertised. The company is going to give it to you for FREE! All you have to do is pay the $5.95 shipping and handling cost. "What a great deal," you think. That is really

a great company.

You receive the order and are delighted with your purchase. However, on your next bank or credit card statement you see a charge from the "reputable" company for $34.50. You think, this must be a mistake.

You contact the company, and they tell you to read the "terms of service" agreement. You do, and here is what is says, in effect. "If you do not return the item you purchased within 14 days, you will be charged $34.50, and $34.50 the same date in the following months, until it is cancelled by you. The first $34.50 is non-refunded. They told you about this in their "terms of service," so they are not breaking the law.

What can I do to stop being ripped off like this?

Here is the good news. If you are willing to spend a few minutes a month and make a few phone calls, you can probably get most of your money back and put the scammers out of business. This doesn't mean you have to go to court or any of that. The scammers cannot harm you, so don't worry about that. I have been doing this for over a year now and have about a 90% success recovery rate.

Here is what you should do. First, don't assume that everybody on the Internet is honest. Look for these red flags before you join anything or buy anything on the Internet. Does the vendor have a phone or email address? Most vendors do. However, don't think that just because they have a phone and mailing address, that they direct you to where you think they will. Call the number. Send an email. In short, just satisfy yourself the vendor is honest, and really exists.

Next, you can establish a bank account, or use the account you now have. Deposit enough money to pay for your monthly expenses. Put a certain amount, say $1000 in that account on the same day of each month. If you use a bank debit card, or a low balance credit card...say $300 to $800... that will allow you to notice any unusual up or down "spikes" in that account. If you see a charge in your account that is not familiar. Contact that vendor as soon as possible. Ask them to check the charge. If it is just an honest error, the vender will usually correct it immediately, apologize, and refund your money.

However if you hadn't contacted them, you would still have to pay for the "honest mistake."

Well, what if they are real criminals scamming me? What do I do then? The short answer is put them out of business. If you think they are not legitimate, contact the State Attorney General of the state from which the scammers are working. Additionally, you can call the State Attorney General of your state. Tell them your problem and they will take it from there. Good luck. And remember, read "the terms of service," or any other small print agreements.

I have now tracked this process for over a year, and have recovered over $1500.00

and called the Attorney Generals in a number states. I don't know what happened to those companies, but I haven't seen any of their ads recently.

You probably need life insurance if you have dependents, and medical coverage if you want to seek medical care at private hospitals. And you can’t hit the road without insurance for your car.

However, banks and insurance companies also market insurance coverage for our other needs, such as when we take up credit facilities, travel or enjoy our leisure pursuits. Here, we examine three categories of insurance products.

1) Credit Insurance

With bank aggressively marketing credit cards, plastic money is getting more ubiquitous by the day. Should you insure your debts in case something happens to you?

Credit card insurance usually provides coverage for death and total permanent disability, due to sickness or accidental causes, of the cardholder. A cardholder who continuously maxes out his card and pays the minimum amount due each month could consider taking up such insurance.

But life insurance is usually taken up for the big crises that will break your bank. If you can afford a credit card, financial planners say you should be able to pay off your debts, thus eliminating the need for insurance. If you can’t repay your debts, then how are you to get the money to pay for the insurance coverage? The best protection for credit cards is planning your finances and not overspending on the cards.

If you decide not to take out the insurance coverage, what will happen to your credit card debts? Under the law of contract, the obligation to settle the credit card debt is not extinguished just because of the death of the cardholder. It then lies with the personal representatives of the deceased’s estate. The personal representative is the executor of your estate (if you leave a valid will) or the administrator (if there is no will).

Furthermore, most credit card holder agreements would have clauses that clearly bind the

deceased’s estate to pay the cardholder’s debts.

Will your parents be saddled with your debts?

The bank only has recourse to the assets forming part of your estate by claiming against the personal representative. The bank is not entitled to sue family member. This means that if you have not left behind sufficient assets or funds to settle the debt, the bank has no recourse against your parents, unless they are your guarantors or your personal representatives.

Where the amount is negligible, the bank may choose to write it off (after a few unsuccessful attempts at recovery) as it would not be worth their while.

When customers take out loans for education or share margin financing, some banks make insurance coverage compulsory. Premiums are based on the customer’s age and the loan tenure and amount.

You can avoid having to take out an individual coverage for each of your credit needs by taking out a life policy that can be used to pay off those debts in the event of death or permanent disability.

However, financial planners say one type of insurance is crucial – mortgage insurance. It’s prudent to take out insurance coverage when you are taking out a loan to buy property. If you were to become disabled in the course of paying off your loan and the bank has to sell your investment (if you do not have insurance coverage). Such a policy should cover not only death and permanent disabilities but also critical illnesses.

2) Travel Insurance

If you are going for a holiday, do you need travel insurance? Consider your destination and length of travel. It’s important to take out travel insurance, particularly if you are travelling overseas.

Travellers usually take out travel insurance for the wrong reasons. Instead of worrying about your plane crashing or the expenses incurred because of missing luggage, you should be more concerned about your hospitalisation bill if you were to need medical care overseas.

Sometimes, you may also require advance medical care and you need to be evacuated to the nearest medical facility. Travel insurance will help ease that burden. Your annual hospitalisation policy may not be sufficient to cover your medical costs overseas. Medical expenses overseas are far greater and the sum assured of a medical policy, once converted into a foreign currency, may not be sufficient for your hospitalisation needs. Travel insurance is even more necessary if you don’t have a medical policy.

Repatriation costs can also break the bank. This service allows someone to bring you back home when you’re injured overseas.

Also, travel insurance does not cover pre-existing conditions. Travel insurance is not meant for you to seek medical help overseas for existing health conditions you are suffering from.

Check that you are not already covered by a complimentary plan offered via your credit card (if you charge your ticket cost to your card) or your travel package.

3)  Golfer’s Insurance

If you happen to play golf, either in an amateur or professional capacity, financial planners recommend that you get insurance coverage.

Golfers may think to seek coverage against damage to buggies, loss of clubs and even to fund the celebration of achieving a hole-in-one but the main benefit of golfer’s insurance is the liability feature that covers you in case you cause a mishap on the course. Can you afford to pay the damages if there is a legal cost attached to mishap on the course? Amateur golfers need such insurance as mishaps are more likely to happen to them.

If you play overseas, you need to tell the insurer that you want worldwide cover. But you should ensure that you have a good plan that gives you worldwide coverage.

The reason we fail to make health decisions in our life so we find ourselves playing catch up. The rest of our life. Even if you just saving twenty-five dollars a week for thirty years how much money would you save. Everyone has money they just blow on stuff they do not need. The Roth is a great way for students to save money for the future and they can draw up to ten thousand tax-free for the future. In addition, you should have four times your income saved for an emergency or illness now I do not even have that much saved. Try to start small and build up. Before you know, you will have thousands saved. The best option is the Roth because you are taxed when you invest but never when you withdraw. I honestly believe this is the only way as Americans are going to get out of debt. Just because you have, a paycheck does not mean you have to spend it. Honestly, I struggle with this concept myself. When I was young, my dad and I were nearly homeless so now that I have money I like to have nice stuff. Therefore, a lot of the time I fight with myself about saving. One thing I have learned is leave the cards at home also pay with cash, which makes it much harder to spend money you do not have.

Meanwhile the Treasury of the English Government, the Bank (IMF), the Federal Reserve (FED) of the United States, its Securities and Exchange Commission (SEC), and the rating agencies Standard & Poors, Moody's and Fitch, slept the sleep of overfed kittens are criminally amiss. It is to be hoped that court proceedings against these agencies and its individual exponents will soon start the world over, as they either criminally played away the peoples fortune or had been lying about their abilities and thereby committed fraud and took up work under false pretences.

As Chancellor in 1997, Gordon Brown (now Prime Minister of ill repute) restructured financial regulation, putting in place the tripartite system of Treasury, Bank of England, and FSA. Together as a whole and individually these institutions failed gloriously to analyse the situation correctly at any given time. Now they do just about everything wrong that they conceivably can think of. And the Prime Minister, as Chancellor responsible for the set-up and the empty heads sitting there, now tries to set himself up as the saving hero of crisis. What a lark.

The Treasury not only underestimated the credit squeeze and its impact on the system, if anybody there knows how to spell credit is debatable, but in March Chancellor Darling still spoke of 2 per cent growth for the economy. And that is the person in charge of handling the crisis? Good Lord.

King, governor of the Bank of England, called the raise in house prises in 2004 ‘unsustainable', and did what all these men do best, nothing. Deputy governor Gieve was responsible for maintaining the stability of the financial markets which he did to our fullest admiration. He steps down, probably to lavish in a retirement scheme which would do the king of Persia proud.

FSA is responsible for regulating banks and ensuring they do not over-extend themselves. Probably the persons responsible were right not to get excited over the credit level in English banks, as harebrained stupidity coupled with pivotal greed do not come under an over-extension label. It is just criminal blood mindedness, which is part of the criminal courts, I suppose.

IMF in Washington is meant to oversee the global market. Being American dominated; it is therefore no surprise that they never even looked at the American market and the racket therein, where any googlian could become CEO of a company including banks. But what do you expect from a country with a chimpanzee as President?

FED's Bernanke has been often criticised for being slow in reacting o the crisis, but then it's probably all Greenspan's fault anyhow, who as predecessor in the post had set up the whole mess. Greenspan, once hailed as the Messiah of the American free market will probably go into history as the man who killed capitalism with his ill conceived policy of low interest rates at the beginning of the millennium which sparked of the credit bubble.

The rating agencies played like all institutes do the pandering whores to the banks. Those who paid most got the best ratings. This system is in place all over the world in all fields of business, e it consumer tests, independent institutes or supervisory bodies, hose that pay the highest price get the best results.

SEC protects investors by maintaining fair, orderly and efficient markets. Quite logically, the same organisation relaxed or rather abolished the borrowing rules for Casino companies such as Merill Lynch, Morgan Stanley, Goldman Sachs, Bear Stearns and Lehman Brothers. Borrowing in Poker Club soared from 6 times their assets to 40 times.

After this long list of watchdog puppies that slept and cashed in, there is the one exception to the rule. BIS, based in Basel Switzerland, has warned for several years of a looming crisis, and been ignored. A year ago it warned again, that the crisis would be greater and more devastating than the Great Depression, and was again ignored.

We see, overfed puppies make no watchdogs. We could crap all these entities from one day to another and safe the exorbitant wages they are cashing in, quite apart from extravagant retiring schemes. Throw them all out, they are utterly useless.

Over the course of the last few weeks, the reversal of word meanings in regard to monetary and banking practices have driven the dialogue of the credit crisis away from the debt subject.  Debt plus more debt equals yet, more debt.  Credit issued when people have savings, collateral or co-signers is one thing, credit issued without the proper credentials is another.  For the main dialogue, the American people listen as someone explains the 'credit crisis' when this is truly a debt disaster.  This is what I would call misleading media or misleading information through media sources.

Debt is created by credit.  Once upon a time, credit was issued if you were 'credit worthy' and 'debt' was the one thing people had, and wanted to get rid of.  Paying off a loan, car or home was celebrated.  Debt was not easily come by, no one really liked it and if they had it, for certain they wanted to get rid of it.

For those Americans who have lived above their means, or perhaps had circumstances beyond their control, bankruptcy was the solution for unmanageable debt.  Wiping the slate clean and starting all over with a fresh start was the legal remedy and most practical solution.  Deep debt, however painful, could be managed by making higher payments, sacrificing new purchases, living not only within your means, but well below your means.  And paying out of debt, means a time without saving. 

With credit cards, revolving credit accounts, easy approval for loans, or mortgages, it is not difficult to see how the debts of many have created the problems for all. 

Looking back over consumer lures into debt, it seems as if the credit card industry has advertising campaigns created to seduce credit card users into thinking the 'charge' experience is the closest thing most will experinence like a Hollywood connection.  The credit card glamorization and seduction marketing development was one of the most successful commercial endeavors on network television.  And for those who wanted the experience, the instant credit card purchase, the car, the boat and perhaps the home, they could not afford, the created debt is not the terminology used for loan marketing, car sales, credit card ads or home mortgages.

Credit scores, credit reports, and other credit bureau and credit review information might not have been so successful in it's endeavor had it been called 'debt'.   It is doubtful with the debt image of the past, any of these marketing techniques would have had any success at all had they been called Debt Cards, Debt Reports, Debt Scores, The Debt Bureau, or your Debt Review. 

Unfortunately, the credit being issued at this time, might produce relief however, is not a solution for a long term positive results.  The issuing of credit is the process for the creation of debt.

Debt is what we currently have and the issuance of credit or more credit into the system creates more debt.  Debt added to more debt equals more debt.  And Debt is the one thing most people need to get rid of, hold the credit, pay off the debt.

The idea sounded safer than they have proved, with interest rates low and lots of money sloshing around in the financial system, investor sought to capitalize on higher assets returns, by increasing the risk, high demand soon squeezed prices, so very little premium was paid for the high risk which had been taken. Error on the side of caution was misjudged, and greater engagement of hazard perception was applied to systematic risk.

With the interest rates low, people took advantage of the liquidity in plentiful supply, at every opportunity that arose the tills were clocking up revenues, the lending institutions threw caution to the wind, and began lending billions for high mark up to unsuspecting people, who found out later, that they could not afford repayments when the rates began climbing again, sub-prime lending was the most visible sign of the debt binge, investors were unable to capitalize on any worthwhile ventures, and the exaggeration of indiscipline caused the liquidity bubble to burst.

Attributing to the cause of the present crisis, cheap money made the world romance with the idea of a leverage spree, individual's borrowed to further invest in property, second homes, and holiday homes in the Caribbean and on the continent, spread betting on casino, time shares, condominium ownership, boats, private jets, and material goods. Investors used cheap debt to invest in higher yielding assets, borrowing against existing investment.

Bank lending grew large and outstripped customers deposits, and the activities were kept off the balance sheet to make the figures look like everything was alright, but the fire of accountability was igniting, and the blaze catching fast with low confidence adding fuel to the situation, banks started showing up the shortage of credit, as debt became uncontrollable, the hemorrhaging threaten to bring the economy to a sever standstill.

The result was that sub-prime mortgage borrowers began to default on monthly payment, the market rediscovered the element of risk, but by then the consequences was devastating, in search for yield the liquidity bubble has exploded; we are now living in an age when vast amount of capital has been lost to bad business practices. Fuelling the cycle of bubble and burst when capital investment flooded into the economy, it was later washed away by banking crooks neglecting good business practices and discipline.

The money managers soon panic, leaving their responsibility for others to clean up the mess caused by free market system, now tax payers are expected to foot the heavy restaurant bill for the just and the unrighteous, if the state step in the risk and rewards all will belong to the state.

If banks were vigilant, accounting would have brought a greater openness to company accounts, and in fairness turn things around, forcing banks to admit to the market price of securities on their balance sheet, but with no markets for many of these assets, banks had to take a gigantic write off, creating the crisis of spiraling lost, and without enough liquidity confidence began eroding away faster than the blink of an eye.

Many financial advisors, traders, and greedy bankers lost their jobs, but in the ensuing process they will have made millions in short term pay out bonuses for market speculation. Bankers knew what was happening, they also knew what they were doing was unjust, but they let it continued because the result would favor their pockets in short term result, the finger of blame points widely to many areas of mismanagement, government bailout will only be an attempt to curb greedy bankers pay.

CBS reporter Steve Kroft interviewed Jim Grant a leading expert on credit markets and Grant stated the current disaster was, “created entirely by Wall Street itself, during a time of relative prosperity. And they did it by placing a trillion dollar bet, with mostly borrowed money, that the riskiest mortgages in the country could be turned into gold-plated investments.”

Monday, October 7^th saw the stock market decline drastically and markets around the world declined as well. The economy of the U.S. and the world is in a tail spin and the $700 billion bail-out is not stopping it.

How did this all happen? Once again I will admit I am no financial expert, but the 60 minute piece did cause this inquiring mind to dig deeper for answers.

Some people tend to see the current crisis as nothing more than a gamble taken by Wall Street executives. Well this was no ordinary poker game or chance purchasing of a lottery ticket. Wall Street executives earning $50 to $100 million a year made decisions which a first year Wall Street intern would have known was a poor choice. Perhaps it is not so much that they made poor choices as it is they decided to go from taking a gamble to committing a crime.

Check this out, noted economists state the $700 billion bail out will not solve the problem because there is something hiding in the shadows that was not taken into account when congress voted to go ahead with the bail out. The investment banks and insurance giants like AIG were utilizing something called Credit Default Swaps and these “little gems” are actually even more scary than the bad mortgage debts.

Wikipedia defines Credit Default Swaps as - “ A contract in which a buyer pays a series of payments to a seller and in exchange receives the right to a payoff if an associated credit instrument goes into default or on the occurrence of a specific credit event named in the contract such as a bankruptcy or restructuring.” It also notes the CDS was originally used as a form of insurance against bad debt but it became a tool for financial speculators when the Commodity Futures Modernization Act of 2000 specifically banned regulation of these trades.

Now get this - the company or investor, did not have to own the bond or the instrument they wanted to “insure” with the Credit Default Swap. Also, if the bond failed they theoretically would receive payment. Because the CDS is not actually an “insurance” product it is not as insurance products are, regulated by the states or federal government. This means there is no over sight of theses transactions and this allowed speculators to make money by purchasing a CDS on a company’s bonds, then shorting the stock of the company in great quantity and getting a payoff that exceeded their “risk” of shorting if the price of the company’s stocks declined.

The FBI has spent untold money and man power on tracking and bringing down the Organized Crime, it appears to me they need to turn their resources onto this monkey business, which is “Organized Crime” on an even grander and more deadly scale.

The actions which have taken place by these investors appears to be unethical at best and criminal at worst. I mean come on Martha Stewart was sent to jail for insider trading amounting to less than a million dollars. That pales in comparison to what these guys were doing. Their actions could very well lead to the financial ruin of the United States and other countries around the world.

You may be thinking this is an exaggeration. According to various financial resources the Credit Default Swap is the most widely traded credit derivative product in the world. The Bank for International Settlements reported the notional amount on outstanding OTC credit default swaps to be $42.6 trillion in June of 2007. This was up from $28.9 trillion in December of 2006. It was $13.9 trillion in December of 2005. It appears to me these increases reflect the period when questionable mortgages were being dished out to people to purchase homes they could not afford and credit cards were being issued to college students who were spending beyond their means. It is reported by the end of 2007 these was an estimated $45 to $62.2 trillion worth of Credit Default Swap contracts. The Office of the Comptroller of the Currency reported the amount of outstanding credit derivatives from reporting banks for the U.S. alone by the end of March 2008 to be $16.4 trillion.

Now the information does not get any better. The CIA World Fact Book reports the United States Gross Domestic Product which is one of the measures of national income and out put for our nation’s economy shows that in 2007 our GPD totaled $13 trillion. That means the total market value of all of our nations’ final goods and services totals far less than these Credit Default Swaps which were occurring.

The decline on Wall Street continues. Many Americans are seeing funds for their retirement disappearing. But what’s happening to the guys who gambled and lost? They have Credit Default Swaps that are paying them off. Also it appears they can use that money to purchase the stocks that are being sold at rock bottom prices. Oh yes, they also have the federal government “bailing” them out. There is something wrong with this system. The federal government should be investigating this deregulated “insurance” loop hole that is causing the collapse of the American economy and threatening to collapse economies world wide.

Insider trading pales in comparison to this scheme. This needs to be called what it is. It is not a gamble. It is not a swap. It is a crime and we should all call upon our elected officials to address this as such. Make a difference, contact your U.S. Senators and Representatives and let them know what you think about this issue.

Unfortunately, like the financial rescue package, it is not a simple thing to explain.

Probably the most accessible way to understand it is to compare it to a mortgage. Without the ability to borrow money for a home, most people could not afford to own one. With the median cost of a US home just over $210 thousand, most of us would be renters if mortgage loans weren't available. To some extent, the same thing is true for business.

Publicly owned companies raise money through the stock market. They publish information about their business, and investors buy a portion of that business through purchase of stock in its initial public offering. After investment bankers take their fees, the company uses that money for a variety of purposes, including expansion, research and development, facilities and equipment. In addition, such companies often borrow money for a period of time through the credit markets. The total of its outstanding stock and borrowings is called the company's capitalization.

Long term borrowing is facilitated through the sale of bonds, and shorter term cash needs, through more expensive commercial loans, or very short term commercial paper. These borrowing mechanisms allow companies to weather short term cash requirements caused by seasonality, economic slow-downs and a myriad of other reasons.

Most businesses have some degree of debt. The reason for that is, again, easiest to explain by comparing it to a mortgage. Let's say you buy a $350 thousand home with 20% ($70 thousand) down. Seven years later, you sell the home for $430 thousand. After paying off your mortgage (now $255 thousand), you will receive about $175 thousand.

• Original price - $350,000 - $70,000 = $280,000
• 7 years reduction in loan balance = $ 25,000
• Loan balance after seven years = $255,000
• Sales price = $430,000
• Less loan balance = $255,000
• Gross profit = $175,000
• Original investment = $ 70,000
• Return on investment 14%

If you had not borrowed any money, and bought your house for $350 thousand in cash and sold it seven years later for $430 thousand, you would have made $80 thousand on an investment of $350 thousand, or 3% annual return.

This borrowing, or "leverage" as it is referred to in business, increased the return on the sale of this home by 11% per year over seven years. Businesses use borrowing, or leverage, for the same reason - to increase the return on investment for their shareholders.

Conservative business analysts usually recommend no more than a 30% debt ratio (total debt as a percentage of debt plus stock) for a business.

Again, this 30% debt ratio is similar to that recommended for comparing housing costs to gross income when considering lending money to a person for a home loan. That allows for a sufficient "cushion" for most people to continue making their loan payments without difficulty. Some leverage is good. Too much debt, though, is bad. That is true for both businesses and people.

Borrowing is an important part of the economy. For people, and businesses that need shorter term loans, it's made possible by commercial banks by taking in deposits and loaning out a percentage of those deposits to borrowers. Their assets are loans.

Over the last few years, in addition to loans, many banks held securities on their books that contained hundreds of mortgage loans that were sliced up into pieces and sold. As everyone who hasn't been under a rock for the last year knows, many of these loans were made to people who couldn't afford them. Most are good, but some are not. So, until we know just how many are bad, these securities that are made up of these loans are hard to sell. What are they worth? How many of the loans they contain are bad?

Nobody knows. So, banks had assets on their books to which they couldn't assign a price. And, when your assets are loans, and you are in the business of making loans, selling those loans, getting money from that sale to make more loans . . . well, you get the picture. So, to shore up their balance sheets, banks hung on to their cash. Need a loan? No lenders. Everybody's holding on to their money, so the FDIC won't force a "marriage" of their bank that has assets that can't be priced, with a bigger bank (at a fire sale price).

Businesses, like car dealers, furniture sellers, clothiers, etc., who rely on banks for financing their inventories were about to face the prospect of being unable to borrow because no lenders were lending. And, their customers couldn't get credit for their purchases either.

We saw automobile manufacturers close their leasing operations. Credit had already begun to dry up. There was a crisis of confidence.

The entire financial system is based upon belief. Money is a symbol. It's not worth anything if the belief is suspended. It can be as small as bankers reducing the available amount on your credit card if they don't believe you'll pay them back, to as large as banks not lending money to each other because they don't know how many sub-prime loans are in their mortgage backed securities. If we all stop believing, the economy grinds to a halt. Jobs are cut. Those of us whose jobs aren't cut stop spending because we believe our jobs may be cut.

We've talked about how the Treasury is buying $700 billion of mortgage backed securities that are on the books of our banks to get the economy rolling again. http://www.bizcovering.com/Investing/700-Billion-Bailout-What-It-Means.280179

That money is the shot in the arm that banks need to get lending again. Like it is when we come to a full stop on the freeway, we won't be at full speed immediately. But this will get us moving again, slowly at first; then back to full speed.

There was a liquidity crisis. But, to put this into perspective, the US economy continues to be the most resilient in the world, and though this problem is severe, we will weather this as we have many other financial crises.

A bet against the US economy has always been, and continues to be unwise. This, too, shall pass.

1. Shred all pre-approved loan and credit offers that you receive.
2. Invest in a mailbox with a lock.
3. Cut up all expired/invalid identification cards. Don't discard the pieces in the same garbage bag.
4. Conduct all phone business at home - cell phones/on the go and public phones are great ways for people to eavesdrop and gain access to personal information.
5. Insist on presenting your photo identification anywhere that you present your check or credit card.
6. Pay with cash or money order as often as possible. This eliminates other people handling your cards.
7. Never use any part of your social security number as a user ID or password.
8. Never use PIN numbers that consist of birthdays, anniversaries, etc.
9. Use a "prepaid" card credit card, such as the Green Dot to make online purchases.
10. Do not give personal information online, by mail, or over the phone.
11. Notify all of your financial institutions immediately if you see unauthorized charges on your financial   statements. Never be afraid to ask questions about the specifics!  Also, notify all three major credit reporting agencies as well as your local police department. Notify all involved creditors as well.
12. If you have a service that you a pre-paying for with cash, decline if they insist upon having your social security number or other private information. If you are paying for services/items in advance with cash, there is no logical reason for them to have this information or run a credit check.
13. And finally, don't allow anyone out of your sight with your ID, social security, credit card, or other personal information in their hands.  If you believe that someone has taken note of your information while presenting your ID for a non-business related purpose, notify their supervisor right away.

After working in collections and dealing with ID theft cases on a regular basis, these are simple mistakes that I have learned to avoid. I hope that they can help prevent you from becoming a victim, and instead becoming a more wise consumer!