Monday, September 27, 2004

The Hidden Shifting of Debt

The order Creditoris Sqauliformes is accomplishing a number of things other than just making executives multi-millionaires while fueling the American economy and pumping up campaign war chests. One thing in particular that stays under the radar of consumer watchdogs is the industry's drive to shift unsecured debt (i.e., credit cards) into the category of secured debt.

Because of the failure to ram so-called "bankruptcy reform" down the throats of a few recalcitrant lawmakers, the next best thing for the industry as a whole is to get more and more of the highest-risk debt moved out of the potential protection of bankruptcy and into secured debt.

It may sound counter-intuitive; why would a credit card company want to have a card balance paid off rather than keep collecting interest and all those yummy fees? Shouldn't they see the home equity lender as a competitor?

The short answer is no, especially if they think the victim might run for cover under the bankruptcy law. And there is so much money to be made, complaining about a supposed competitor would be like a fishing captain bitching about another boat somewhere else on the ocean. Besides, it's bad form to diss your fellow squaliformes.

To secure this debt requires someone to "own" something like real property that can have a lien placed against it which is used as leverage to make sure the victim keeps up on the payments. Hence the thrust to get prospective bankruptcy filers who own homes to refinance anything and everything into some kind of a mortgage-linked loan. Pay off your cards, your student loans (really dumb idea), your car, fix up your house, go on vacation, etc., etc., all at the risk of losing your home.

The great "American dream" of homeownership is much like the marketing of diamonds. That industry managed to convince the women of the world to believe only a diamond is worthy of that ultimate symbol of marriage. And yes, ladies and gentlemen, size is everything.

Home ownership is supposedly so good for the economy that Washington provides some tax benefits for the interest paid on mortgage loans. Why? Because everyone should have the opportunity to own a home.

Why? Sociologically, it appears there are benefits. Financially, it can be a very good investment. That does not mean it is right for everyone, and in a growing percentage of situations, it is far better for the squaliformes than for a consumer. As mentioned previously, a certain amount of collateral damage is acceptable.

Squaliformes know once they find the right kind of victims there will be multiple opportunities to profit. Many in the order thrive on taking small chunks of wealth over time, while leaving the larger members like predatory mortgage servicers to ultimately finish off the meal when there is nothing left but the home.

Part of this works because it works. In other words, when someone gets far enough behind their debt, everything costs more, which simply makes it more profitable for the lending industry because everything ends up being paid for with higher interest rates, which makes it harder for victims to pay for them, and so on and so on and scooby-dooby-dooby. [ed. A little bit of morning bench humor.]

The victims just can't seem to get ahead. The fact is though, they're not supposed to. If they somehow managed to actually get ahead, they wouldn't qualify as food for the squaliformes. The sub-prime food chain must be kept in operation, otherwise those who are ahead would have to pay more for everything and they might slow down their spending.

The entire economy relies on debt and the flow of wealth. It was designed and institutionalized that way. There is nothing inherently wrong with that situation unless you believe in some far-less viable economic system such as communism or socialism.

But what is inherently wrong is the legalized manipulation of middle and lower-middle class consumers to subsidize the rest of the economy with usurious interest rates and inflated insurance premiums. And at the same time, lowering the squaliformes risk by securing more and more of their debt with their only real assets; their homes.

The Honorable Judge Roy Bean.

1 comment:

An Admirer said...

Blog on, Judge Roy!

Good to see you putting this all out in the open. People need to learn never to play into the scheme by turning unsecured debt into secured debt, lest they lose it all in the end.

I LOVE this blog!