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And so we begin with another
dive back into the archives while
my wife and I consume an inordinate amount of our precious fossil fuels during another trip to the East Coast.
This time, writings from
the month of April (and maybe
early May) over the last six years
will be summoned, perhaps offering up a new perspective on our
current condition. This first item originally appeared here on April
9th, 2005 and includes now
infamous comments by
former Fed Chairman Alan Greenspan - his lauding of advances in subprime lending...]
Greenspan Week concluded
on Friday when the Chairman spoke
about Consumer
Finance at the Community
Affairs Research Conference in Washington. CNN/Money neatly
summarized the message in their
headline Greenspan:
More credit is a good thing, but they left out the most important,
and most disturbing parts
of the speech.
For those who
say that the Federal Reserve controls interest rates and liquidity only, and that it has little or no influence
on where the money goes
– read on. Amazingly,
in this speech, sub-prime
lending is presented as a great success story, not a potential problem – the potential problem, as identified here, is that
too many people are being excluded from acquiring credit!
“Where once more-marginal applicants would simply have been denied credit, lenders are now able
to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately.
These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent
of the number of all mortgages
outstanding, up from just 1 or 2 percent in the early
1990s.”
So, Ameriquest is
good for America – that’s
the message.
Has he
read any of the newspaper accounts about
how sub-prime borrowers
are surprisingly clueless
about all things financial,
and that, many of them, when they
are told that they can actually have that
nice house down the street,
just sign on the dotted line?
“For some consumers,
however, this reliance on technology has been
disconcerting.”
Disconcerting in that
lenders are extending credit to people who ten years ago
would never, ever been extended credit? No …
“Consumer advocates contend that the lack of flexibility in the models can result
in the exclusion of some consumers,
such as those with little or no credit history, or misrepresentation of the risk that they pose.”
You see the real problem
is that some consumers are excluded or charged too high an interest
rate – we must find
a way to allow more
people to borrow more money … amazing.
“Home ownership is at a record high, and the number of home mortgage loans to low-and moderate-income and minority families has risen rapidly over the past five years.”
Yes, the foundation for
the house of cards we
call the housing boom consists
of lower income and minority families, many of them sub-prime borrowers, who are achieving the American dream that they
once thought was
impossible – making first time home purchases of overpriced real estate with loans
that they do not really understand … the most marginal of all borrowers seizing the day.
“The more credit availability expands, however, the more important financial
education becomes. In this increasingly competitive and complex financial services market, it is essential that consumers acquire the knowledge that will enable
them to evaluate products and services from competing providers and determine
which best meet their long- and short-term needs.”
Yes, we live in an ownership society and we must
all educate ourselves
– acquire the knowledge
to evaluate different and
better ways to go further into debt. Maybe as part of this educational process, people will at some point learn that while
they thought “ownership society” meant owning their home – what it really
means is owning the debt.
Tim Iacono
Iacono Research.com
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