Personal Debt

It has been over a month since my last post, and since I had a few days off over Christmas, it's hard for me to even argue that I didn't have time. Further compounding the argument is that I have been without a tv for a few days, and so in theory I should have even more time to write in this that I did before. The real issue has been that I haven't had any real things to write about;  at least not according to my format. I could, I suppose, change the format nad move this to a more diary-style blog, but I don't know that I particularly want to do that; I mean, that's what everyone does and I have to do something unique. Why i care I'm not sure; it 's not like there is anyone actually reading this and I haven't told anyone I know that I even have a blog, nor have I posted a link on my facebook page. But I think I will stay the course for now; I have made an unofficial goal of 4 posts a month to this and I will likely reveal the location of this blog to a few people in the next little while. That may prompt me to post more frequently on here. I will likely let my spouse, my family, and a few friends know - if they want to let others know that is of course fine with me. 

But with that extensive preamble, I haven't actually identified an issue I want to talk about. I am still steering clear of the big ones, like abortion, assisted suicide, capital punishment, the existence of a God, and so on. And I won't go i to those ones now. I think, maybe, a good topic could be consumer debt. 

Consumers debt is the responsibility of the individual: Any loan, credit card, or mortgage that a person gets, they get on their own. They are the ones who sign on the dotted line and agree to whatever terms they have negotiated. If they can't live up to the terms that they agree to, then they are the ones who should suffer, and it is not up to anyone to bail them out. 

Many times, people will exaggerate to get credit. They will inflate their income, they will minimize their expenses. As we know with the subprime crisis, part of the problem had been the NINJA mortgages - no income, no job, approved! and the people who would claim much higher incomes to qualify for bigger homes and mortgages. People who know enough to commit fraud are certainly aware enough to know whether or not they can handle loan payments - and now everyone else is being made to suffer for their greed. 

By not holding people accountable for their debts, then we just encourage people to not pay back what they owe. If people can't pay their mortgages or other loans, they shouldn't be allowed to walk away from them - they should have their wages garnished until they are paid back. They dug themselves into a hole, they can dig themselves out. In fact, we should bring back debtors prisons and make people work off their debts. 

Consumer debt is a product of predatory lenders: Credit issuers are more than happy to give credit to just about everyone. They call people up to sign people up over the phone. Maybe people exaggerated on their mortgage applications, but they had a responsibility to not lend out money to people who couldn't pay it back. Abdicating responsibility for things like income verification is comparable to not pulling a drivers abstract on someone who wants car insurance - just bad business. Why would you not verify income unless you knew something was wrong?

Yes, individuals sign for loans. but they have no idea what they are signing. In a mortgage, they are given a 200 page document, and the broker will flip to last page and say "Sign here." A credit card application over the phone? Did the sales person read the 4 page agreement to them? Of course not! Maybe we all shouldn't have to bail them out, but the US government was happy to bail out banks that had horrible lending guidelines. And the US government was the organization that made the money available to banks in the first place - and since the government is an extension of "the people" then "the people" must share in the blame. 

Of course people should be held accountable. But let them negotiate reasonable rates. If the government is willing to bail out banks, the banks should be willing to help bail out their customers. Let people who have been suckered into bad loans a chance to fix their problems,  and most people will. 

Where I stand: I think that this current mess if largely the fault of the lenders in the US. They created this mess with their lousy policies and securitization and packaging of mortgages. It is important to note that Canada never had the same standards as the US, and most consumer debt in Canada I believe the responsibility lies on the consumer. Some people thought there were smarter than the average bear and lost out; that is the risk they take. People in Canada who refinanced their homes still had to prove their income and their home value, so trying to keep up with the neighbours does not work as an excuse here. In the US, though, they built a system that had fatal flaws in it; and if they want to bail out the banks, they would do well to bail out the consumer as well. It is important to note that Canada could easily have went down the same path that the US did, and it was starting to but the arrival of the crisis when it did in the US helped put a stop to it in Canada.

 

How I relate: I went to school for finance, and I work in a bank. I also have so considerable consumer debt, so I understand a fair bit on both sides of this equation, and I think that lenders would do well to tighten their standards - both for their sake and the consumers. Tight credit rules, however, makes it easier for the shadowy side of lending to emerge- payday loan companies and pawn shops as a legal example, and loan sharks as an extreme one.