9/30/2008
My problem with the bailout is manifold but at least part of it is personal. Being a person of relatively low income, I’ve had a lot of opportunity to deal with the less friendly side of banks. At times, it seems as though they really do want a pound of flesh given the outrageous rates they charge on their credit cards — up to 33%, if you can believe it — and the fees on banking services generally.
I have a little bit of history with banks. As a young woman, I worked for banks and savings and loans for almost ten years, right through the financial crises of the early 1980s. One of my employers went under while I worked there and was taken into receivership by the federal government. I still remember the auditors marching in in their black suits. And hey, guess what the problem was? Worthless mortgage-backed securities, a measly $48 million dollars worth.
Around the same time, I remember temping for a big Baltimore bank called Equitable Trust Co., since bought out by who knows who. My job was to sit with some other girls up in the executive offices of the bank — a marble and glass, chandeliered and red-velveted upper lobby on the top story of their downtown, harbor-side office building —and process hate mail.
It seems that the bank we were working for had recently joined the herd of banking institutions moving their corporate headquarters to Delaware where they could charge much higher interest rates on credit cards. Local people regarded them as greedheads and were not pleased. Judging from how many block-printed letters and cut-up cards I opened (and threw away on behalf of my employer), their customers were disgruntled too.
But then that sort of thing became the norm, and impossibly high rates became just a cost of doing business for consumers unlucky enough to have missed a payment or two over the years.
And yet, credit was already de rigeur even then. Young people were taught that it was important to “establish credit” just in case, first by applying for a department store card and then working up to Mastercard or Visa.
But by the late 1980s, they were handing out credit cards like candy. especially to college students. I’ll never forget the first time I saw credit card companies with tables in front of the student union of the college where I worked. They were signing people up right and left. But that was nothing compared to what came later.
Once they had everyone hooked on credit cards, they eased terms for other kinds of credit. Student loans have since gotten colossal, even for people whose earning potential after college seems completely insufficient to pay off that kind of money. It’s hardly surprising that a larger number of people than usual are now defaulting on these loans.
Mortgages and home equity loans have gotten equally ridiculous, especially during the last decade. At one time, people might borrow somewhere between $50,000 and $150,000 to buy a house. Anything over that was regarded as extravagant and largely unnecessary. It was still hard to buy a house because you needed a down payment, something most people had a tough time coming up with. So buying a house was a big deal, and involved a lot of preparation, even though housing prices weren’t that high.
Then, somewhere in the early Bush years, things changed. The concept of McMansions emerged. Suddenly people were paying $500,000 for houses, even more in some places. The houses themselves, lots of them of new construction, were over-the-top. Regular people could never have afforded those houses 10 years, or even 5 years, before. But somehow, they could afford them now.
When they say that incomes haven’t risen in the last decade, it’s not completely true. For a lot of us, incomes have remained flat. But for those willing to play the game, who look the part and have the background and desire, there have been high paying jobs to be had. Again, with remarkable suddenness, many younger people of my acquaintance — a reasonably average lot of Americans, I always thought — turned out to be making between $100,000 and a quarter million dollars a year. Me, I never made more than $40k, so this was a big surprise to me.
And yet, even affluent people got into trouble. Partly it was those houses they were buying and the vacation homes, the vacations, dinners out, and consumer products, that started to sink them. They were living high, and it seemed as though they should be able to, but in fact, their eyes had been bigger than their wallets and they overextended. Stretched that tight, all it takes is one major setback — and life is full of them — to upset the delicate balance that allows the high life to continue.
As tempting as it might be to blame the victims, and especially those who bought into the big-ticket lifestyles, the banks share a huge responsibility for what happened to Americans during the credit build-up of this decade. They gave us the money. They urged us to take the money. They made it easy to take the money. They made it uncool not to take the money.
Meanwhile, prices of everything kept going up so that it took more and more money just to stay at the level you were at. In 2001, our rent in Boston went from $1500 to $1800 for a far-from-palatial apartment overlooking a parking lot in Somerville. Heating costs spiked and added to the burden. Food was expensive. In the end, we were forced to relocate, right before that final rent increase went into effect. In the meantime, we were forced to charge things like transmissions and rent.
Other marginally more affluent people around us bought huge piles of stuff, apparently because Bush told them to right after 9/11. I knew it was bad when I started to see people charging food. And the banks continued to finance every penny, even though it had to be clear to them from the start that there was no way people were going to be able to pay this back. One has to assume that the profits on all that lending were enormous.
Today, what they should have seen coming — and what many of us did see coming — has happened. The banks have failed. All that capitalist lending has seized up, and now the bankers and lenders and professional investors are lined up, wheelbarrows in hand, to get their handouts.
I understand what the pro-bailout group are saying. They believe that the bailout is akin to emergency surgery. It may or may not work, but if they don’t do it, the patient will die for sure. Whether or not the patient will die without an infusion of $700 billion tax dollars is a matter for debate. Can decades of irresponsible lending practices be undone by writing one big check? Will even this large sum be enough?
Meanwhile, the larger question is: do we really want to continue the practices of the last 20 years, and if not, how do we go about changing them if banks are no longer allowed to fail?
