Video 02 – The Story of Credit Throughout History

Transcription of History of Credit

I’m going to spin you off into the story of credit. We live in a pretty credit based economy, right? It affects almost everything that we do. Credit has been with us for a long time. I’m going to roll you all the way back to the crusades. Interesting thing happened during the crusades, Europe decided that the common way of thinking in religion in the Middle East wasn’t too good and they had a great excuse to get rid of some of their young rambunctious guys to send them down there on a mission to straighten these guys out. Then there got to be a lot of commerce between Europe and the Middle East. A lot of money going down for equipment and supplies and then they would take treasure and plunder back into Europe.

A great industry developed there in robbing these caravans of stuff going back and forth between Europe and the Middle East. This organization of the late young Aristocrats came about. They decided let’s make this organization, it was kind of this quasi religious organization they called the Templars. Some of you may have heard of them they’ve got the little white flocks with the red crosses, sometimes they were herofied, sometimes they were vilified. But they were what they were. But their business plan at that point in time was to make safe passage between Europe and the Middle East and so they would heavily arm these guys. They were pretty good fighters and they would escort caravans back and forth to guard that treasure.They did real well with that.

Then they decided there is a better way, you know we’ve got enough money of our own here. Why don’t we just take deposits in Europe, give a letter of credit. They don’t need this whole caravan guard on the way down. They can take this letter of credit, take it down to the Middle East and then exchange that for cash and that worked real well. So they were doing that back and forth from the middle East to Europe. They got to be pretty wealthy and at some point in time they figured out, gee, you know, these letters of credit don’t necessarily have to travel. You know, we’re holding them for two or three months, maybe we can just do letter of credit in Europe to somebody and they can reimburse us with our little fee at the end of the period of months. Poof! Credit was born! They became very wealthy doing that. They became so wealthy that some of their clients were like the King of France, the Pope. They loved credit. They had never seen anybody that loved credit like that. King of France had a bit of a shopping problem. Next thing you know, his debt service was more than his income. Created a real problem for the kingdom. The Pope didn’t do much better. They were real into lavish life styles in that period and they ended up very heavily indebted to the Templars. Problem, OK. Upside down.

So they got together and they think well you know what do we do about this? We need to find a solution to this problem. And so the Pope Says, I got a great idea. We can brand them as heretics and call them nonreligious. We can get together, I’ve got a little army, the King of France has got an army. Let’s just gather them up, kill them and chase them out of town. They thought well that’s a great idea. Then we don’t have to pay them back, right? And then they decided well it’s not going to be so easy, you know these guys are pretty elite fighters. They’ve got a strong fighting force and maybe we better surprise them. So they organized this day. They did it on a Friday. Happened to be the 13th of the month. We know that to this day as Friday the 13th. They rounded up all those guys and they killed most of them, ran the rest of them out of the country. First debt problem was solved. The church at that point in time claimed that charging interest was usury, was not a Christian thing to do to charge interest anymore. That lasted for quite a while.

So we’ll roll forward a few centuries and then we’ll go back up to Europe. We’ve got another group that became pretty successful lending money. They didn’t have the same religious restrictions. So they could charge interest. Once again became pretty popular. People liked interest. Some people became very heavily indebted to this group and wasn’t so happy. Once again some people got into the situation where the debt service became burdensome. This group became very unpopular. It was a very astute young politician who decided that a really good idea, you know, maybe we should rally against this group of people and I can be really popular. And they started this party called the Nazi party. Adolf was his name. That story didn’t end so well either. They didn’t fair so well with that. But that was second big credit eruption in our history.

Roll forward to today, now credit is becoming very predominant. Obviously, we don’t religious restrictions against lending and we have interest again. So corporations and the lenders are becoming very strong, very powerful. We can see sentiment both ways against that, but that’s the world we live in. So, there’s credit.

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