Opinion: Borrowing’s fine; but debt? That’s a national crisis

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If there’s one thing even cave-dwelling, 15-year-fixed-rate-paying troglodytes must acknowledge, it’s that the the national crisis in sub-prime lending has doomed the real estate market, perhaps the entire American economy. Senate Banking Committee Chairman Christopher J. Dodd (D-CT) is already calling for a multi-billion-dollar bailout. Presidential hopeful Sen. Hillary Clinton (D-NY) has diagnosed a financial pandemic that can only be reversed by giving the erstwhile head of the Task Force on National Health Care Reform all the powers of the White House. Strangely though, this horrific news has somehow escaped the notice of homebuyers here at the epicenter of the sub-prime slaughter of innocents, where actual closing prices continue to climb. What explains this disconnect?

The sub-prime meltdown takes place in a context of debt panic—specifically, a context of other-people’s-debt panic. The economic left, values conservatives and bien pensant moderates are in full agreement on this one: Poor people’s access to debt is driving them to fiscal ruination or worse. The new documentary Maxed Out makes the case for massive increases in federal oversight that will prevent suicidal college students from getting credit cards. Generation Debt glamourpuss Anya Kamenetz, whose hard-luck bio includes the Dickensian detail that she ‘graduated from Yale seven months after the 9/11 attacks,’ has built a stellar career on the premise that having to pay your student loans is no different than serfdom. Ambitious politicians and math-unencumbered reporters are in hot pursuit of the culprits: predatory lenders, indifferent regulators, Madison Avenue captains of consciousness—everybody except people who borrow large sums of money with no intention of paying it back.


It’s interesting that the conventional wisdom once said the precise opposite—that the deserving poor didn’t have enough access to debt. As an audio-visual aid, you can do no better than the great ‘collateral’ speech from The Best Years of Our Lives, viewable in three parts in Quicktime here, here, and here. Fredric March, playing a rising bank middle manager who has just returned to his job after serving as an Army NCO in the Pacific, reads a rambling riot act to a banquet of porcine small-town bankers who have criticized him for providing loans to bad-credit-risk veterans. He argues through parable: If we’d fought like bankers, seeking collateral for every risk and a guarantee on every expenditure, we’d have lost the war. In this context, it’s a straightforward redistribution-of-wealth argument, in which the prerogatives of the common good are asserted in the baldest terms: If the state can claim its citizens’ lives (or in the case of the film’s disabled co-star Harold Russell, their hands), who are you to try and hang onto your property?

The joke of history is that all that easy money March was calling for created one of the greatest booms in the country’s history—the suburbanization of America, which is now derided by the bien pensant classes who claim there’s too much ready credit out there. The difference now is that it’s coming from the free market rather than a package of government guarantees, from an industry that expanded to fill a demand and is now contracting as the demand has been filled. In a sane world, we’d say this is a free market behaving as it should, and marvel at an economy where so many people who were once locked into the renters market have gotten a chance at homeownership. Some of them have blown their chance—by exhibiting the same kind of behavior that made them bad credit risks in the first place. But most have not. In fact nine out of every ten Americans carrying sub-prime loans are still making their payments.

So our grandparents solved the not-enough-credit crisis, and Clinton and Dodd are well on the way to solving the too-much-credit crisis. What will they think of next? Will it be a ‘savings crisis’ like the one that supposedly haunts the Japanese economy? Only one thing is certain: Whenever the next big one comes, there will be plenty of deadbeats, politicians, and people who can’t do math around to cry that the sky is falling, even if home prices are not.