Released: April 03, 2007

Trillions in debt, can middle class hang on?

Source: James Scurlock, AlterNet

How do we stop the credit industry’s predatory business model and get Americans out of debt when incomes aren’t rising as fast as the costs of healthcare and housing?

Last week, the FDIC and the Federal Reserve Board were forced to remind the nation’s bankers to verify their customers’ incomes - adding that it might be a good idea to determine whether or not said customers could afford their mortgage payments. The new guidelines are expected to have a chilling effect on what the industry calls “home ownership.” Many esteemed economists have expressed hope that the resulting declines in home values, which have been inflated by the lack of such guidelines, will not stop too many Americans from cashing out the equity in their homes to keep consumer spending up. In other words, the “new economy” is based on people slowly losing home ownership, not gaining it.

Yes, this is both absurd and dangerous. But no, go-go bankers are not entirely to blame for our national credit fiasco, of which subprime mortgages - the ones that have been blowing up lately, wreaking havoc in markets here and abroad - will ultimately prove but a footnote. Go back and do the math, like professor Elizabeth Warren of Harvard Law School, and you’ll discover a systemic problem: Incomes aren’t rising nearly as fast as big-ticket costs like healthcare, education and housing. Ergo the negative savings rate, the two-thirds of us who can’t pay our credit card bills off every month, and the proliferation of “liar’s loans” - where customers fabricate an income high enough to qualify for a mortgage and banks promise not to call them out on the lie.

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