And, predictably, we start talking obsessively about disclosures again. Of course loan disclosures can always be improved, but there gets to a point where some loan products are just simply so complicated that there isn’t any easy, clear way to explain them fully to most people. This is nature’s way of saying you shouldn’t offer those loans to most people. I have personally been known to get rather impatient with people who start nattering on about those stupid borrowers who took loans they didn’t understand (like balloons or IOs or OAs or whatever dumb thing we’re talking about). They weren’t supposed to understand them. By that I do not necessarily mean that they involve math-like concepts that are over a lot of people’s heads, although sometimes the weirder ones do. I mean that borrowers weren’t supposed to understand themselves. We were all supposed to look in the mirror and see the upper-middle-class people on TV sitcoms or financial-planning infomercials who will always be able to make those voluntary principal payments or handle those balloon payments or—snort—“invest” the principal portion of the payment in some fantabulous risk-free deal that made mortgage financing free after taxes or whatever that long song and dance is. You can write any pristinely clear mortgage loan disclosure document you want, but if the world keeps telling you it is your patriotic duty to confuse yourself with your economic betters, it won’t do you any good.
I can second this motion. I've had an ARM, a HELOC, and a balloon at one time or another in the last 5 years before I jumped into a fixed rate. My knowledge level of what was entailed by those products was not where it should have been. Fortunately, I was convinced that the party would eventually end, (thanks in no small measure to the clarion calls transmitted by s9 from his orbital redoubt), and escaped unscathed more or less. But I can tell you it's easy not to fully grasp what the risks are, and the "disclosure" process is not very enlightening, particularly since most brokers don't understand or don't want YOU to. The type of person who brokers loans is, and I'm being rather sweeping here, not ideologically predisposed to question the prevailing delusions about "innovations" and the new gilded age where risk seemed to be soley found in the rantings of mad socialists waving a copy of Das Kapital. My loan broker was convinced that democrats would destroy the economy with goverment regulation if they came to power. The idea that this unregulated ponzi scheme he was particpating in would do more damage than the most committed Marxist never occured to him. He was not unique in buying into this paradigm.
My purpose with posting this link is not just to start this discussion about this ongoing trainwreck, but to make the argument that what we have is not one of those neccesary bouts of "creative destruction" in the Schumpter sense, but really a failure of ideology. An ideology that posits that the market, any market regardless of complexity or history, functions best without regulation or oversight. The failure of this ideology, again, is the true lesson to be learned. Alan Greenspan's policy of living the Randian dream has produced what it always does, spectacular failure. Our challenge as liberals and progressive is to make this point clear. Unregulated markets, particularly in such essential areana's as credit and real estate, produce fraud and catastrophe for investor and homeowner alike. The lessons of the New Deal are still relevent as Tanta points out in her piece. And all the clever advertising about middle class homeowner as sophisticated loan expert and investor doesn't change that, or make people any smarter about these issues. Hell, even the "professionals" who were supposed to know what the score was were clueless. It's high time we had this discussion about what we can reasonably expect a regular person(s) to be able to sort out about money and finance.