Saturday, September 01, 2007

Maxed Out

I just watched a very interesting indy documentary called "Maxed Out". Being tragically unhip, I rarely watch indy movies or documentaries but I really enjoyed this one and highly recommend it.

A few related thoughts:

1. I take the concept of personal responsibility pretty seriously -- but -- I have to say that the whole bankruptcy 'reform' legislation of 2005 still burns my butt. Back in the day, lending institutions paid very careful attention to the balance between risk and reward. They made a nice profit on loans (reward) but they had to be careful not to lose the principle by lending money to folks without the means to pay it back (risk). In time, however, the lending industry learned that, for a variety of reasons, high risk loans often turned to be far more profitable than regular loans. And so it was that predatory lending went mainstream. With actuaries busily weighing optimal profit conditions against the price of default, suddenly every 18 year old student in America was receiving pre-approved credit applications in the mail. Sub-prime loan products, crazily concocted for maximum profitability, were being pushed (and, having some familiarity with the industry, I do mean PUSHED) onto unsuspecting consumers. But, like a junkie who starts thinking about his next fix before the needle is even out of his arm, lenders were already thinking about how to decrease risk in a way that would ensure an even greater profit. They also started to worry that continuing to downplay risk in favor of profit might be exposing them to a whole lot of ugly if the economy ever turned bad. They lobbied for - and achieved - the bankruptcy 'reform' legislation of 2005, which Bush happily signed with a wag of the finger to irresponsible borrowers. Irresponsible lending, of course, is still the shiznit.

2. For all of the endless conservative blah blah blah about the success of supply side economics (which, I'm sorry, is such a load of bullshit that I can't even type the words without rolling my eyes), I find it hysterical that in times of trouble, Bush (as did Reagan!) continuously calls on us to shop til we drop. So lessee... it's ok to give welfare to corporate America in the name of supply side economics while trash talking any kind of government assistance program for the people as evil socialist tripe. But when the economy is really in trouble, let's beg for a Keynesian consumer spending spree to bail it out.

3. If the current credit craziness turns into a full blown economic impact, I hope one of the outcomes is a close look at the credit reporting system and FICO algorithm. Credit scores make the world go 'round but the process for how the data is collected, analyzed, and maintained is apparently top secret stuff. Like some kind of KGB Gestapo organization, the big 3 credit bureaus are not required to fix or even admit mistakes in what they're reporting about your credit. In fact, they do not appear to be accountable to anyone at all for the data they keep. Scary.


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