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Mark Giemen has a helluva interesting (and scary) story on Slate on why the mortgage crisis may just be getting started.  There are many choice quotes in it, but the point basically boils down to this: as home prices continue to fall, even non sub-prime borrowers are going to find it entirely in their interest to walk away from mortgages that actually cost more than the value of their homes.

I like the point he makes about Treasury Secretary Henry Paulson’s plea to homeowners that they should ‘honor’ their mortgage applications.

The problem with finger-wagging on what you “should” or “ought” to do is that, when it comes to money, you’re usually given the lecture only when it’s in your interest to do the opposite.

Bingo. When the government is pleading with people to do the right thing, the incentive in the existing market to NOT do it must be strong indeed.

I looked at buying a house back in 2005. I remember being pushed hard to look at ARM’s, but I remember having some trepidation about a loan where I didn’t even have to make the interest payments for the first year or two.  Nonetheless, I can’t blame those who did bite on that offer for being greedy.  After all, the lenders sign dozens or hundreds of these loans, while the borrowers may only sign one or two of them in their lifetime.  It seems to me there’s plenty of blame to go around. The lenders took the quick commission, forgoing future stability for the quick buck, and the borrowers jumped at a deal that seemed too good to be true.

It’s a book title, but also a great way to describe the way many of our companies seem to do business nowadays.  Hidden fees, jacked up interest rates, sneaky changing of due dates to charge late fees to more people, unwieldy contracts with $400 termination fees for buying a $200 cell phone.  All of it making me very much question my natural leaning towards deregulation and getting the government out of business.  If this is how they exploit the customers when the government isn’t looking, they obviously need to be regulated.  Or worse, what if this is how they behave when they know the government IS looking?

Perhaps it’s not the libertarian ideal of deregulation and hands-off capitalism that is at fault here, but rather that government interference in our economy is systemic at all levels, and not just in ways that benefit the consumer.  A few years ago I blasted the GOP for passing a ‘bankruptcy reform’ bill that they claimed only served to stop a nebulous group of scammers from abusing our system and harming the poor credit companies who were constantly being ‘taken in’ by them.  In truth, it was nothing more than the GOP congress passing a bill that was heavily lobbied for by the credit card companies.  Far from only stopping the ‘abusers’, it removed protections that were in place for victims of ID theft, removed existing protections for those whose time was taken up by caring for ill or disabled family members, and rejected provisions that would have aided those burdened by medical debt (the most common type of bankruptcy), and rejected provisions that would have aided servicemen and women and their families fighting overseas.  All this despite the fact that the credit companies claims of harsh economic conditions were belied by their very own marketing, much of which involved marketing cards to these very people that had just declared bankruptcy!  While the GOP tried to stand astride the mantle of ‘deregulation’ and ‘business-friendly’, what they really did was inject themselves once more into the marketplace, changing the rules of contracts that were already in place for the millions of consumers who had already entered into contracts with credit card companies, cell phone-companies, etc.  And changed those rules in a way to benefit these corporations when these companies showed by their own marketing that they felt the rules were already vastly in their favor.

This bill most certainly was not the impetus for the current credit crunch we are now facing, but I think there are very few people that would argue it helped.  If anything, the most logical consequence of the GOP bill was to initiate stronger marketing of credit by credit cards, mortgage companies, etc, and leading to a greater use of this credit by both smart and not-so-smart consumers.

This Bill Moyer’s interview with David Cay Johnston only fuels my doubts about deregulation.  The story about the American dream denied for a small store owner who is beat out by a 32 million dollar Cabela’s paid for by the taxpayers is quite illuminating.  Some can argue that the Cabela’s employs more people than the small outdoors shop ever would.  Perhaps that’s true, but it’s also true that the small business this entrepreneur ran paid him enough so that he could afford to have his wife stay home with their kids,  a common thing for my parent’s generation, but exceedingly rare nowadays.   It seems extremely unlikely that ANYONE working at that Cabela’s would be able to say the same.  A small number of decent paying jobs were replaced by a larger number of lesser paying jobs, and the entrepreneurial spirit of another small businessman takes a giant hit.   And the part of it that to me is the most shocking is that it’s all done on the public dole.

You know, maybe my vision of a small government staying out of our economy and letting the free market take it’s course isn’t faulty. Maybe it is, maybe it isn’t.  But it seems clear that it’s a fairy tale.  Our government has it’s hand’s in our economy in so many ways, most of them not even noticed.  It seems that I have to forget about deregulation and worry more about the regulation and corporate welfare being effective than being nonexistent …