House of Credit Cards
The hazards of an economy built on bad loans.
Why are banks willing to lend money to people who cannot afford to pay them back? If you're curious as to why the mortgage market seems to have suffered a meltdown of late, and what this says about how banks are manipulating your money, this is the question you have to ask.For the answer, look at Enron-Ken Lay's house of cards is a scarily apt analogy for the modern mortgage machine. In both cases, borrowers and lenders engaged in the most irresponsible behavior imaginable: the bankers investing vast sums in questionable loans because of their obscene profitability and borrowers suspending their own disbelief because of the bankers' assurances. Americans will pay nearly any price to achieve the American Dream, and bankers will charge nearly any price, even a ruinous one. For a time, loaning lots of money to people who couldn't really afford it was a win-win situation: The banks got rich while their customers felt as if they were getting rich. But, as was true in Enron's case, and will be true in the case of the mortgage market, these were simply delusions of grandeur. And if the bubble bursts, anyone who owns a house or invested in a mutual fund is going to feel the pain.The big difference between the mortgage business and Enron is that Enron executives had to invent the schemes that guaranteed its spectacular demise. The bankers just cut and pasted those schemes onto mortgage documents, creating whoppers like "loan-to-value," where a house could be appraised before it was even built. Most notorious were the "liar loans," which give the banks an incentive not to verify their customers' ability to pay and their customers an incentive to delude themselves. This is worse than just nodding and winking. A recent New York Times article pointed out that 90 percent of liar loan applicants had-surprise-lied about their income. The legal term for such behavior is fraud.
|What does it say about the American Dream that it is now built on lying?|