This one mistake wrecked some of the largest banks in the world. And it could be ruining your life too.

Why banks thought they needed to keep you off balance, and what you can do to get your life working again

It’s no secret that the economy is a mess right now. What happened?

When an economic crisis seems to come out of nowhere, the answers are found not in the sudden downturn, but in the fury of activity that preceded it. You look at the boom to understand the bust.

The bigger the crisis, the harder it is to see where it came from. A really big economic crisis can happen only when nearly everyone shares in the error of perspective that gave rise to the problems. When even the experts and billionaires are confused, it can seem as if there aren’t any answers. But there are.

Rick Aster
Rick Aster: musician, technology
expert . . . economist?

The “Shamanic Economist”

I have a degree in economics and I’ve spent years working for many of the largest banks in the United States. I can tell you that the banks have been struggling for much longer than the economy has. In economic theory, mergers are a sign of a declining industry. I’ve been in on so many big bank mergers, I’ve done work for 17 top 10 banks. And there are others who can top that.

I haven’t always talked about the economics side of my career because it seemed more helpful to talk about what I know about technology, and more glamorous to talk about the music I’ve been involved in. Banking work is pretty drab to look at — fluorescent lights, ID badges, telephones, and computer screens. And my specialty in the banking industry, the work I did so well they started to call me “the shamanic economist,” was not always inspiring.

I was a magician at a kind of work called customer segmentation. It’s a fancy term for turning people into stereotypes. It’s just the kind of work that inspired my song “Quit Your Day Job” a few years ago. But as unremarkable as the work seemed at the time, the perspective it gave me is absolutely important right now.

Not Just an Account Number

Banks don’t brag about their customer segmentation, but they depend on it. When the people at the bank are talking to you, you’re their most important customer. But if you’re don’t have a billion dollars to throw around, the bank doesn’t know who you are the minute you walk out the door. Even a “small” bank can have 10,000 customers. All it can do to keep track of you is to put you together with other customers who are likely to have similar ideas, needs, and tendencies. This way, the bank can see you as more than just an account number. It can see you as a type — for example, banks see me as a single male suburban homeowner entrepreneur investor. That’s simplifying quite a bit, but you get the idea.

In reality, of course, you’re not a stereotype any more than you’re an account number. You’re a unique individual. But don’t rush out to tell your bank that just yet. Read this next part first.

Distractions and Cloudy Decisions

It’s getting harder and harder to sell anything to anyone. Who can honestly say they need more stuff? To sell you more, businesses need a way to persuade you that what you have already is not enough while they make you forget what you really want. They need a way to distract you.

The basics of this are pretty well known by now. One of the simplest tricks is to get you to compare one thing to another. Would you look better going to the beach in a minivan or an SUV? If they can get you to seriously consider this question, they are well on their way to having you forget what you really want, which probably has nothing to do with the way you look while you’re driving anywhere.

They’ll play on your insecurities . . . create the illusion of peer pressure . . . guilt-trip you . . . anything to make you lose your balance long enough for you to buy.

You’ve seen all these tricks before, so they continually change them around to try to make them look new. They test every idea they can think of. Different distractions work on different people, so when they hit on a distraction that works on customers like you — on customers in your market segment — they know to send it along to you. This is target marketing — and the better they do it, the more cloudy and confused your decisions are going to be.

Why Banks Take a Special Interest in You

All kinds of business use customer segmentation and target marketing, but banks have a special interest in this side of the commercial process. The special interest that banks have is even called interest. It’s the extra money you pay when you borrow money. The more stuff you buy, the more likely it is that you’ll need to borrow. You’ll carry a balance on a credit card . . . take out an auto loan to buy a car . . . borrow money for 30 years to buy a house. Buy enough stuff, and the banks could end up getting half of your lifetime income in interest payments.

You read that right. You could work hard for 40 years and make $1 million — and the banks could take $500,000 of that as their share of your income.

If banks had eyes, their eyes would light up with dollar signs at this scenario. Banks try to pull in the biggest share of consumer income that they can get. But doing that means keeping consumers perpetually off balance so they will be perpetually in debt. When banks figured out how to do this, they thought they were finally doing really well. And for a few years, it seemed like it was working.

I wish I could say that this plan fell apart because consumers got wise and stopped participating, but I can’t. The reason for the financial collapse you’ve been hearing about is not that it didn’t work. It’s that it worked too well.

The Financial Collapse of 2009

When the economy gets hopelessly off-balance in a mania, it’s based on one simple idea, which says that one particular thing is far more valuable than it actually is. The recent boom was based on the idea of keeping consumers, especially the more prosperous ones, off balance and confused so that banks could get about half of the consumers’ income in interest payments. It looked very profitable to banks and investment funds. They fell all over themselves and put crazy amounts of money at risk trying to own a share of the financing for consumer discretionary spending — which basically means, people buying stuff they don’t really need with money they don’t have. Consumers, imagining that their own success was assured by borrowing and spending as fast as they could, got caught up in this too.

There is a glaring flaw in this plan when we look at it now. If consumers are continually borrowing more money, that also means they are never paying it back. As soon as significant numbers of consumers got squeezed and couldn’t make their loan payments anymore, the party was over. The signs that this was happening were obvious enough, for anyone who wanted to see them, early in 2004. In 2005, the financial problems started to snowball. Now some economists think the collapse will finally hit bottom in 2009. Others, though, say the economy couldn’t possibly bottom out until at least 2010.

To tie this all together, this is the sequence of what just happened in the last five years or so:

  1. Target marketing. By testing anything and everything, banks and other businesses find ways to get every kind of consumer to make bad decisions and buy stuff that isn’t really what they want.
  2. Consumer debt. Consumers borrow more money than ever, mainly for discretionary purchases.
  3. Credit mania. Banks and investors fall all over themselves trying to own as much consumer credit as they can, thinking it’s a profitable investment.
  4. Consumers get squeezed. Consumers owe so much that as soon as something goes wrong, they can no longer pay off their debts.
  5. Financial collapse. The whole debt-fueled economy goes to pieces in the biggest economic crisis in 75 years.

This is a problem that can’t be solved by focusing only on the last few links in the chain. People in New York, Washington, and London are focusing on putting the financial system back together. That’s a good thing in principle, but it could actually make things worse if the heart of the matter isn’t addressed. The heart of the matter, the root of the problem, is the target marketing that leads people to borrow more money than they can pay back to buy things that aren’t really quite what they want. As soon as we turn that around so that, for the most part, people are spending their own money to buy the things they really want, then we can have a solid economy again.

The Stuff Trap

I think everyone has figured out it doesn’t make financial sense to borrow and spend the way banks were encouraging us to do in 2005. When you look at what happened to the stuff that so many people bought so much of, that picture doesn’t make much sense either. Most of the stuff is just sitting around waiting to be used. Some of it was used once or twice, then forgotten. But even more of it has never been used at all.

The process of tricking consumers into buying stuff created financial stress. It also created an even bigger problem, a problem that came about when people bought so much stuff that they didn’t have time to use. The extra, unused stuff formed a “stuff trap” that is compounding all the other problems people are having.

I saw the impact of stuff in my own life years before I recognized it as a broader economic pattern. I thought I was making smart buying decisions, but when I looked at how I was using all the stuff I bought, it gradually dawned on me that I wasn’t using most of it. I was just imagining that I was using it. The cupcake pan, the ZIP code directory, the broken speaker cabinet, the fuzzy brown sweater — I had a story in my head about how I was using each of these things, but in actual fact, I hadn’t used them in years, and it didn’t seem so likely that I would use them ever again.

In the meantime, I was drowning in stuff. All the things I had were keeping me from living my life. I wasn’t using my things because I didn’t have time — and all the stuff was the main reason I didn’t have time.

Having too many things means having too many things to do . . . and just like everyone else, it was a struggle for me to keep up with life. I knew I had to straighten out my life, but I never seemed to find the time. There were big things I wanted to do with my life, but most of the time, they were just dreams. And everyone I talked to seemed to have the same story. With all the urgent demands of life, there never seemed to be time to think about dreams, about what life could be.

Then finally it hit me: the real problem was the stuff itself. It was clutter. It kept us off balance. It kept our dreams at a distance and kept us from making the decisions that would make our dreams happen.

Corporate marketers use a million tricks to keep you buying more stuff, but all the time, the biggest thing that keeps you off balance is all the stuff they’ve already sold you. The stuff that fills up your closets, shelves, and cardboard boxes is the biggest distraction of all. The deeper they can make the pile of stuff that surrounds you, the easier it is to sell you more — because the more stuff you have, the harder it is to remember what your life is really about.

Everyone starts off life full of dreams, until all these “things” come along and push the dreams farther and farther away. Logically, to make the dreams a bigger part of life, you have to make the “things” smaller.

It all goes together: the consumer debt mania, the customer segmentation, the targeted advertising messages, the piles of stuff, the endless lists of things to do, the off-balance decisions that keep things from getting better, and the sameness of life when you struggle against the same frustrations day after day. It’s all about “more,” about excess, about insecurity, about never quite making up your mind and doing what you really want to do.

I realized that most of my stuff was just a kind of indecision. Like a person who couldn’t choose between an apple and an orange, I was keeping things I thought I might use “someday.” That really just meant I hadn’t decided what I wanted to do with my life. If I wanted to start making some real decision, I would have to start by deciding what to do about all my stuff. And that’s what I did. Then, after I cleared a lot of the extra stuff away, there was room to focus on what I was doing today.

Who Has Time

Imagine all the things you could do if you just had the time — but who has the time? It turns out that anyone who clears away enough clutter to take back control of their space would also take back control of their time, and they would have time to do the things they thought they should be doing in life.

One of my dreams was to run a marathon. It used to be that it was hard for me to take the time to run one mile. Now I’ve run and finished a marathon every year for the past five years. For me, it’s a dream come true. What’s more, by spending a little more time keeping myself healthy, I’ve now gone seven years without a sick day. I never thought of myself as a particularly healthy person, so that’s a streak I wouldn’t have thought possible. By 2006, my situation improved so much that I had bought a new house, written my song “Quit Your Day Job,” and said goodbye to my day job in banking.

Other people around me did the same things I was doing, and they got the same kind of results. It changed their lives. I saw people change jobs and pay off their debts. Musicians were recording albums twice as fast as before. Everyone who tried this seemed to go from struggling to keep up with life to always seeming to be one step ahead.

The best part is that everyone who used the principles I was talking about seemed to be making better spending decisions, even though spending isn’t really a key part of my system. Just by focusing their lives on the things they really wanted, people weren’t so easily taken in by advertising messages about things they might want.

I had a step-by-step system that would let you get control of your life, get the distractions out of the way, and focus your action on the things you really want, and I had time to write it all out — and not as a computer program for a bank to use, but in a book that anyone can read.

It’s All the Result of Just One Problem

My new book Fear of Nothing is all about the one problem that can keep you from tuning in to the moment, making decisions, and taking action to take charge of your life.

Fear of Nothing - front cover

That one problem is that you have too many material things you are not using . . .

and too many things to do that you are not doing.

I know that sounds like two problems, but as you discover when you read Fear of Nothing, it’s actually just one.

All the excess in your life, whether it’s clutter (“too many things”) or a busy schedule (“too many things to do”), distracts you from what you’re doing right now. It keeps you from taking the action you need to take.

That might sound a little too simple, but it really is as simple as that.

Fear of Nothing guides you through a process of stripping away the excess so that you can focus on the action that life is made of.

It reveals the secret hidden deep within your brain that makes you hold on to the very excess that gets in your way . . . then shows you how to overcome this obstacle so you can streamline and simplify your life and start really living.

I put many of the principles of Fear of Nothing to work in my own life a decade ago, and I turned my home into a “vacation home” . . . and now every day feels like a vacation. This was the result of one simple change . . . and I’ll tell you how I did it in chapter 5.

If you are often bored with life, and every day seems the same, I can sympathize — that used to be me too! In chapter 1, I explain how that happens and what it takes to change it.

Also in chapter 1, I describe the cultural assumption that is behind so many of our problems in life. After you read this, you’ll be saying, “What on Earth was I waiting for all this time?!”

In chapter 6, I tell you about the things you do that make the biggest impression on the people around you. Then I go on to explain what it takes to get more leverage so that you can expand that area of your life.

How much clothing do you really need? The answer, in chapter 11, is sure to surprise you. I can say that because I remember how much it surprised me when I discovered the answer.

The whole book is packed with insights that will surprise you . . . and change your life. After you read Fear of Nothing, you will never look at your life, or your things, the same way again.

Take a Look Around

Right now, take a look around the room you’re in. Or walk around your house looking at everything. With every possession you see, ask yourself: When was the last time you used it? When are you likely to use it next? What do you hope to accomplish with it? If you’re like most people, what you’ll find is that you are actively using only a small fraction of your possessions. And if that’s the case, it’s time to start taking the excess away. And when I say “it’s time,” I don’t mean “someday,” I mean, take ten minutes right now. Get a trash bag and throw some things away. Or give things to people who would actually use them.

And then, if you’re ready to take back control of yoru time, your space, and your life, here are three more things you can do: