Even if they had enough cash flow, many businesses assumed that they could always get credit to make payroll or short term purchases and do more long term things with their cash. That worked fine as long as they could get short term credit. No short term credit because the bankers are panicking over their other mistakes means the entire house of cards falls.
I did the same thing too by taking out a home equity loan to pay off my regular mortgage because the interest rate was cheaper. I then paid down my equity line and had essentially no cash in savings and checking because I could always get it back out of equity easily. During normal times that made sense because paying down a 6% mortgage, even temporarily, was a better use of the cash than making 0.5% in checking or savings. However, the bank doesn't have a legal obligation to continue to extend that line and I would have been in a world of hurt if they cancelled new lending from it. I have since corrected that problem.
The problem is that MOST Amerikans are living like this EVERY SINGLE DAY! The majority (about 65%) of Amerikans live paycheck to paycheck. And this is the same thing - they rely on that next check to make up for the bad decisions they made with their last paycheck.
Studies show that the last two generations have almost completely abandoned the practice of “pay yourself first.” Individual personal savings accounts are almost non-existent. And all of these people believe and live as if their next paycheck will pay all of their expenses. So, if they get laid off, get really sick or have a emergency like a broke down car or medical requirement, they have no money to handle the expense.
A perfect example is how the bankruptcy courts have noted that medical bills are the LEADING cause of bankruptcy. Now, the MSM and Democrats say this is because “the cost of health care is outrageous!” but they fail to mention that the families refused to plan for rainy days. So, yes just like all other expenses, health care has gone up, but maybe it is because the hospitals have to write-off so many bills due to BANKRUPTCY filings!?!
Instead, these new generations live in the moment. They drive newer cars than any other generation in history. They have larger, more expensive houses at a younger age than any other generation in history and they live larger than that weekly paycheck. So, any little bump in the road causes major catastrophe!