Easy credit rip-offs, good times
The Olympian runs an interesting article from The Bellingham Herald which recounts how Chris Gregoire, in her days as AG, went after Household International over subprime lending abuse. While she achieved a settlement, that didn't stop the industry as a whole.
For years now there has been plenty of criticism of American consumers over their horrible credit habits. And certainly it's fairly nuts to live beyond one's means, although to be fair many citizens are pushed over the financial edge by a health care or other crisis. There's a profound difference between running up the credit card on luxury lifestyles and running up the credit card out of sheer desperation to stay afloat.
The financial services industry is not without blame, either. Extending absurdly high lines of credit and making mortgage loans to borrowers who clearly will not be able to pay them back is irresponsible and damaging to the economy, as we're seeing now. While the economy isn't going to collapse over this scandal by any means, it is so thoroughly unnecessary that in the future we hope federal regulators will, you know, regulate the lending market.
But that will require an administration that actually believes in governing. This administration started with the electricity crisis, which featured the complete rip-off of West Coast consumers, and now we get the subprime scandal. I hope Grandma Millie, the apocryphal consumer two Enron traders had a good chuckle over, didn't purchase an ARM from Countrywide, too.
It's fine to foster competition and market forces, but it's silly to be absolutist about it. Sometimes markets need greater regulation to keep them functioning as markets rather than Ponzi schemes or monopolies. The only legitimate way to do that in a representative democracy is to have it done under the auspices of a government elected of, by and for the people.
So if the subprime scandal doesn't finally put an end to the political legitimacy of the "drown it in the bathtub" types, I don't know what will. The free market absolutists are a tiny minority compared to the population of the U.S., and it's been repeatedly shown that key markets in this country are vulnerable to manipulation and corruption. I don't know why we stand for it.
After the Household International episode and several similar cases gave clear evidence of the risks, many are wondering why subprime lending excesses were allowed to go on unchecked until the mortgage system went into a tailspin.The article goes on to discuss how risk was transferred from lenders to anonymous investors, and so the reasoning goes, the lenders just kept on collecting fees while making very risky loans.
Kathleen Keest, a former Iowa assistant attorney general involved in the Household International case, said today's financial mess could have been avoided if regulators and major financial institutions had heeded the lessons of that case.
"It's not that it wasn't foreseen, because it was foreseen," Keest said. "In this era of 'the market is god,' people just didn't want to listen."
Joseph Mason, associate professor of finance at Drexel University, has done extensive research into the financial underpinnings of the subprime mortgage industry. As he sees it, the potential for disaster in the subprime lending arena should have been obvious before, during and after the Household International affair. "Household was among a number of aggressive players," Mason said. "It was not unique in its business model. By not cracking down after seeing this kind of behavior, regulators allowed it to grow and become standard industry practice."
For years now there has been plenty of criticism of American consumers over their horrible credit habits. And certainly it's fairly nuts to live beyond one's means, although to be fair many citizens are pushed over the financial edge by a health care or other crisis. There's a profound difference between running up the credit card on luxury lifestyles and running up the credit card out of sheer desperation to stay afloat.
The financial services industry is not without blame, either. Extending absurdly high lines of credit and making mortgage loans to borrowers who clearly will not be able to pay them back is irresponsible and damaging to the economy, as we're seeing now. While the economy isn't going to collapse over this scandal by any means, it is so thoroughly unnecessary that in the future we hope federal regulators will, you know, regulate the lending market.
But that will require an administration that actually believes in governing. This administration started with the electricity crisis, which featured the complete rip-off of West Coast consumers, and now we get the subprime scandal. I hope Grandma Millie, the apocryphal consumer two Enron traders had a good chuckle over, didn't purchase an ARM from Countrywide, too.
It's fine to foster competition and market forces, but it's silly to be absolutist about it. Sometimes markets need greater regulation to keep them functioning as markets rather than Ponzi schemes or monopolies. The only legitimate way to do that in a representative democracy is to have it done under the auspices of a government elected of, by and for the people.
So if the subprime scandal doesn't finally put an end to the political legitimacy of the "drown it in the bathtub" types, I don't know what will. The free market absolutists are a tiny minority compared to the population of the U.S., and it's been repeatedly shown that key markets in this country are vulnerable to manipulation and corruption. I don't know why we stand for it.
