American Consumer & Predatory Lending

Posted on May 16, 2009. Filed under: Legislation, Mortgage Law, Politics, Predatory Lending, Truth in Lending Act | Tags: , , , , , , |

Today President Obama is conducting a town hall meeting in New Mexico focusing on the issue of credit card debt. This is a welcome turn in the national economic conversation from the plight of big institutions and the financial system to what is perhaps the most important part of the story of the Great Recession still not adequately understood – the weakened state of the American consumer prior to the recent recession and financial collapse.

We’ve told this story many times – despite robust growth in the Bush Era, incomes for a typical family fell. Most measures of consumer health during the Bush went in the wrong direction. We saw an increase in those without health insurance, in poverty, incomes fell. The lack of income growth – coupled with a flood of cheap money – helped drive increased consumer indebtedness – mortgages themselves, credit cards, home equity loans. People borrowed to maintain their lifestyles, and to keep up with the Jones. The continued consumption and borrowing was justified in the minds of consumers by the power of the wealth effect brought about the rapidly increasing value of homes and stocks. But we know what happened next. Assets fell. Incomes did not appreciably rise. The debt remained. People lost jobs. The already very weakened balance sheet of a typical family grew much much worse.

via Simon Rosenberg: The Economic Conversation Enters a New Phase: Putting Consumers Front and Center Now.

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