The Debt Trap

The New York Times has started running a disturbingly insightful series on the mounting debt that has ruined millions of Americans, making their life hell and ensuring that our economy will continue its downward slide for years to come.

For years, this country's giant lenders spent hundreds of millions of dollars on advertising that targeted people in need, especially those with health care costs, in offering them teaser loans, promising to get them out of debt. But as people borrowed more, these same lenders jacked up their interest fees, digging these people even deeper into the quicksand of debt. According to the series, these lending practices have gotten completely out of control as average household incomes' have stagnated along with the value of their homes. In the past, many of these lenders did not depend on their loans being repaid since they sold off these loans and made money on their investment. As a result, they could bear the brunt of some borrowers defaulting. But the last few years have seen the real estate prices coming off their abnormal high (due to speculators), and at the same time, wages have become frozen, prices have skyrocketed, and many people have lost their jobs.

Rather than meeting their borrowers half way and agreeing to more favorable terms, which would help Americans get out of debt, these lenders have made astronomical profits on late fees, interest fees, and junk fees that go along with refinincing of mortgages.

But now, the ripple effect is ravaging the lenders as well. Finally, I say! It was about time! While there is no doubt that many Americans have gotten themselves into this mess by living outside of their means, it is absolutely undeniable that lenders have played a big role in getting them in this mess to begin with. Many Americans grow up with the notion that owning one's home is essential to one's self-esteem, which leads many to borrow hundreds of thousands in mortgage without first ensuring their job security. With their sub-prime mortgages, lenders have exploited the American dream narrative, racking up millions in CEO bonus pays.

To give you some perspective, here are a few statistics. Today, the total consumer debt in this country totals the staggering $ 2.56 trillion, which is up 22% from 2000 alone. The average household credit card debt is $ 8,565, up 15% from 2000. College debt has doubled since 1995 resulting in an army of recent college graduates who are forced to declare bankruptcy upon graduation: the average student emerges out of college with $20,000 in debt.

It is therefore undeniable that we are in this mess because of the greed of lenders and the Wall street. They prayed on the average American, profiting from the raising health care costs and luring people into debt, knowing that they would have to default. Well, now that millions of Americans can no longer pay their mortgage and monthly credit card bills, the banks and other lenders are also feeling the pinch. I feel bad that their CEOs might take only a couple of millions in bonus pay this year, but they so deserve to go completely bust. The bankruptcy law that they lobbied for (successfully and with the full support of the Democrats) has made it almost impossible for Americans to get out of debt.

I hope this crisis convinces all of us that tighter government regulation of the financial sector is essential for the sustainability of the economy. We need to remind Obama on a daily basis of this and pressure his administration (when he is President) to change the criminal bankruptcy law, and authorize the Fed to regulate lending practices.