I use that whole incident as the preface to my real subject of today, which is the fact that huge amounts of people are losing their homes and other possessions bought with credit they couldn’t really afford. There were three separate stories today in the Seattle Times about this. The first one, which I want to quote from here in a second, has to do with the predatory lending practices by practically the entire U.S. lending industry. The second has to do with the problems that people who wish to sell their homes at less than they owe on the house. The third is about how people are just walking away from “luxury” assets, such as boats, RV’s, snowmobiles, etc., which required large loans to finance.
Here are some passages from the first story that really struck me hard.
The lucrative lending practices of America's merchants of debt have helped lead millions of Americans — young and old, native and immigrant, affluent and poor — to the brink. More and more, Americans can identify with late 19th- and early 20th-century miners in debt to the company store, with little chance of paying up.
It is not just individuals but the entire economy that is now suffering. Practices that produced record profits for many banks have shaken the nation's financial system to its foundation. As a growing number of Americans default, some banks are recording hundreds of billions of dollars in losses, devastating their shareholders.
But behind the big increase in consumer debt is a major shift in the way lenders approach their business. In earlier years, actually being repaid by borrowers was crucial to lenders. Now, because so much consumer debt is packaged into securities and sold to investors, repayment of the loans takes on less importance to those lenders than the fees and charges generated when loans are made.
Lenders have found new ways to squeeze more profit from borrowers. Though prevailing interest rates have fallen to the low single digits in recent years, for example, the rates that credit-card issuers routinely charge even borrowers with good credit records have risen, to 19.1 percent last year from 17.7 percent in 2005 — a difference that adds billions of dollars in interest charges annually to credit-card bills.
Average late fees rose to $35 in 2007 from less than $13 in 1994, and fees charged when customers exceed their credit limits more than doubled to $26 a month from $11, according to CardWeb, an online publisher of information on payment and credit cards.
Mortgage lenders similarly added or raised fees associated with borrowing to buy a home — like $75 e-mail charges, $100 document-preparation costs and $70 courier fees — bringing the average to $700 a mortgage, according to the Department of Housing and Urban Development. These "junk fees" have risen 50 percent in recent years, said Michael Kratzer, president of Feedisclosure.com, a Web site intended to help consumers reduce fees on mortgages.
"Today the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset," said Julie Williams, chief counsel of the Comptroller of the Currency, in a 2005 speech that received little notice at the time.
So, just to recap. Lending institutions now regard their principle method of making money from loans NOT from the interest they charge. No, they view their main method of making money is jacked up interest rates on adjustable rate loans, late payment fees and the accompanying exorbitant interest rates that the loan bumps up to when even a single payment is late. They do not consider having loans paid off on time as important as collecting penalty payments. In fact, they would rather you not pay them off on time.
The entire industry is based on having consumers of their credit products being in some sort of financial difficulty that ranges from just being late on their payments once or twice to being in dire straits, not being able to pay off at all and losing their homes or other things they purchased with credit.
I do not see how any industry can be so shortsighted. This entire house of cards, and that is what this is, is built on the unstated premise that consumers in this country will remain in a state of perpetual indebtedness but will still continue to pay their financial “obligations” and not default on their loans altogether. And no one apparently ever considered the possibility that this would happen on a huge scale, such that the entire underpinnings of the lending industry would be affected in such as way as to result in huge corporations having to be bailed out by the federal government. The full effects are still yet to be shaken out.
This is the same thought processes behind the insurance industry, where one of the first priorities of insurers is to find some way to get out of paying their policyholders when legal claims are made against those policies. They will play games with semantics, they will use every single method they can conceive of to get out of paying off their customers, because that would affect what they see as their earned profits. There is very little time spent, at the high levels of these companies, about the pain, anguish and human suffering is caused by their single-minded pursuit of keeping every single dollar that comes within their grasp.
I have news for those Republicans, like Gramm, who believe that an unfettered, unregulated business environment is somehow, for business, on par with the Ten Commandments, handed down to Moses by God, chiseled in stone. Not only are you showing that you have very little humanity and compassion within you, your entire basis for raking in huge piles of dough when you already have huge piles of dough only works for the short term. You have absolutely no idea about how to assess future impacts of your single-minded pursuit of as much money as absolutely possible. You don’t even consider that you may be undermining your entire cause by your current actions.
I find that incomprehensible as well as bloodless and shows just an astonishing amount of greed that drives their entire thought process. Anyone who doesn’t take possible consequences of their actions into account before you set off on some task deserves what they get. Please note that this same thinking, or lack thereof, is evident in Bush’s war planning in Iraq, or lack thereof. The Iraqis will welcome us as liberators; the oil revenues will pay for the war… Everything will be ponies and ice cream.
The huge problem in this, of course, is that all these ramifications that they didn’t consider do not just hit them. They are hitting the entire country. The rich and powerful will usually survive any bad times. It’s the rest of us that have to pay for their lack of thought and imagination in their quest for more money, more power, etc., etc.