We socialists, I hope, are not the types to revel in I-told-you-so’s, but for years we’ve been sounding the alarm that the consumer purchasing power of our fellow patriotic Americans could not be counted on to fuel the global economy. Wages for working Americans have been essentially stagnant since the 1970’s, leaving a huge amount of consumer debt to preserve the American Way of Life. But, we warned, one day we will all have to pay the piper.
That day seems to be at hand, with a mortgage crisis and bank failures making headlines. Gee whiz, the New York Times is finally giving this story the attention that it deserves in an otherwise-excellent series of articles “about the surge in consumer debt and the lenders who made it possible.” One article, which readers will likely use as a yardstick for their own financial worries, profiles a Ms. Diane McLeod who amassed over $280,000 in debt through credit cards, the home shopping network and two mortgages:
Ms. McLeod, who is 47, readily admits her money problems are largely of her own making. But as surely as it takes two to tango, she had partners in her financial demise. In recent years, those partners, including the financial giants Citigroup, Capital One and GE Capital, were collecting interest payments totaling more than 40 percent of her pretax income and thousands more in fees.
The temptations are surely hard to resist. As soon as I entered college, I received unsolicited credit card applications on a weekly basis. As soon as my first mortgage bill came due, I received my first offer to refinance the loan. But my parents’ own problems with debt when I was a kid served as a cautionary example for me, and I’ve always chafed at the idea of owing anyone or anything. For the most part, I have what economists would call “good debt.” About twenty thousand dollars in student loans, still in an in-school deferment. A single home mortgage with tiny monthly payments of under $400. I own multiple credit cards, but, save for a period of unemployment a few years back, I’ve never carried a balance (and, ironically, the time that I did rack up – ultimately pay off – credit card debt probably improved my credit rating). I have a small auto loan that I’m rapidly paying off by trebling the minimum monthly payments. And I’ve even got a modest savings account!
So, all in all, I’m doing okay. Except that the credit crunch and general economic uncertainty is effecting all of us by making everything so damn uncertain. For example, I’ve been trying to sell my apartment since last September to no avail. But the only official bid I got was an insulting low-ball offer from some 23-year-old kid with such bad credit that it would be a miracle if he got a mortgage. As a board member of my co-op, one of the last buyers that I recall approving was a unionized Long Island schoolteacher earning an impressive six-figure salary, who, nevertheless, had amassed a significant amount of consumer debt that he was diligently paying down. His credit score wasn’t very good, but he obviously earned enough money to swing the mortgage and maintenance payments and still afford annual south american vacations. So we approved him as a shareholder, on the cusp of the mortgage crisis.
I’m fairly certain that if this teacher applied for a mortgage today, he would be rejected. So, if people like that can’t get clearance to buy their own homes, who can be counted on to buy us out of our grossly inflated mortgages? No wonder this entire country feels like it’s waiting for the other shoe to drop.