The rich rule over the poor, and the borrower is servant to the lender. ~Proverbs 22:7 (NIV)

This global crisis was created by the overleveraging of every sector of our economy. From individuals and families, to small businesses and retailers, to large corporations, financial institutions and governments, everyone going into this crash had way too much debt on their books. I was dumbfounded when I heard that defunct Lehman Bros. had only $1 in cash for every $30 dollars they “invested,” which meant that their equity would be depleted with a loss of just 4%.

The prevalence of easy credit can be blamed for the housing bubble that when it burst brought us to a breaking point. In the markets that were greatly affected, some homeowners were taking out exotic interest-only loans, initially-low adjustable-rate mortgages, as well as taking loans that had debt-to-income ratios over 50%, meaning 1 of every 2 dollars was going to pay for the house and other debt. It got out of control.

All of this credit has made everything we buy cost more than maybe it should be. It makes me wonder what a car would cost if only a three or five-year loan was available rather than a seven-year loan. Certainly if the whole cycle of using home equity to pay down credit cards, just to rack them up again needed to stop.

So it is time for deleveraging. This is the kind of hard medicine that money advisors like Dave Ramsey and Suze Orman have been prescribing for years now. The standard outcome is no debt and six to eight months of living expenses liquid in the bank, then start working on the retirement fund.

For small business that means staying off of the line of credit to make payroll, but rather stash cash away to be your own banker in hard times. Governments have to watch costs most closely and brace themselves for lower tax revenue until we turn this thing around.

As I write this, the Dow average is at a near 12-year low, and I’m hoping that we’ve seen or are at least getting close to a bottom. It seems that the doom and gloom advanced by the press is getting to be a bit overstated. I mean, when you have companies that really make things like GE getting hammered to near penny stock status, you start thinking that we may be oversold.

Hopefully, after the pain of lower activity brought on by correcting our overindulgence, we can rebuild our economy on honesty, and intelligent use of credit. I’m not saying that we follow the fiscal policy of It’s A Wonderful Life’s Mr. Potter, who would rather keep the residents of Bedford Falls in his rented slums. But prudent and responsible use of credit could put us back on a strong footing for years to come.