I'm having some trouble getting my head around many different aspects of the big financial crisis. In particular, the whole sub-prime mortgage business seems to be screwing over a lot of folks of modest means. But on the other hand, it's hard to see how making credit unavailable to folks of modest means would really be a good thing for them in general. A lot of the liberal commentary on this seems to basically take the form of saying, well, these poor folks just shouldn't be able to get loans. Max Sawicky (whose "left" credentials are more impeccable than mine) laid out the dilemma the other day:
Easier credit benefits the working class, since it faces borrowing constraints. Available credit can make possible otherwise infeasible home purchases, higher education, and business start-ups. Inevitably in this context you will see predation, but defining predation is not so easy. An obvious case would be lenders providing loans with inadequate disclosure of terms. Even with full disclosure, however, the borrower could make unwise financial decisions. In fact, we know that many always have and always will.
In general the line between predation and offering easy terms bundled with potentially dire consequences seems a blur to me. The lender needs some combination of spinach and dessert for the business to be worthwhile. It makes no sense to attack lenders for covering their backsides to justify the wider availability of credit. Well it makes political sense sometimes to say stupid things.
Right. The trick is that given a collapse of this magnitude, it's all but inevitable that the public sector will do some bailing out. What one wants is, at the margin, for the largest possible portion of the bailing to go to people with the most objective need rather than the most political clout.
We want to hear what you think about this article. Submit a letter to the editor or write to email@example.com.