distal muse

observations, opinions, ephemera, and views


April 06, 2017

Your Money

Richard Cordray, head of the Consumer Finance Protection Bureau, was interrogated on Capitol Hill by Republicans who want to shut his agency down. The agency was set up under Obama. Originally, it was to be run by Elizabeth Warren, but she received such violent resistance that she stepped aside, making way for Cordray, and then ran for the Senate, where she has been a burr under the GOP saddle ever. They might have been better off, by their own thinking, to leave her alone, but thinking long term doesn’t seem to be their chief strength.

You might ask why the CFPB is the target of so much bile. If you really don’t know, then you’ve never been strapped for money, in need of a loan, and then taken advantage of by a lender with all the morals of a Glyptapanteles. The CFPB stands in the way of banks picking pockets.

No, really, it’s that simple.

Back in the 1980s, we were thinking about buying a house. We went to our then bank to get pre-approved. Good to know what you can bring to the table when it comes time to actually buy. We sat with a lending officer who crunched our numbers and announced how much we qualified for. Both of us swallowed audibly. It was an absurd figure. I did some quick math and laughed.

“You’re joking,” I said.

“No,” he said. “This is was you qualify for.”

“But we can’t afford that.”

“Sure you can.”

“Not and continue to eat.” I then laid out our budgeting constraints for utilities, food, insurance premiums, and so forth. At the end of the month, we were shy the amount he had just given us and not by a small amount.

“That’s not our concern,” he said. “According to us, you can pay this much. How you manage the rest is up to you.”

We were appalled. I stopped short of telling him that was unethical to say the least, because I realized that according to him he was being ethical. He didn’t lie about anything—not technically, at least.  But the tables and formulae he used to arrive at his figures were industry standard. He was following the rules. It was entirely up to us to take him up on it.

But when you consider how innumerate people are and how little many of them understand about finance, added to the unadorned desire to own a home, you can see how being told by someone in authority—a banker—that you can afford the house of your dreams will roll right over any prudent misgivings you might have but cannot quantify.  This is what led to the 2008 meltdown—bad loans, made with the full awareness that many of the people taking them could not sustain them. Add to innumeracy the widespread illiteracy among the most vulnerable demographic groups—illiterate not in the sense that they cannot read a sentence, but in that they do not know how to comprehend complex writing—and you have a recipe for abuse.

Which is what happened.

The CFPB was established as a bulwark against such abuse. A barrier between banks that frankly don’t give a shit about people as other than ledger entries and people who are ill-equipped to defend themselves.  And really should not have to. We’re supposed to be a country of laws, but in the last few decades it seems that any law keeping a banker from your money is bypassed, repealed, set aside, ignored, or smashed into useless pulp by people who for no reason they seem willing or able to explain claim to be doing this “for the people.”

(To be fair, there were many people in lending at low to mid-level who knew this was going to be bad, some even tried to avert some of it, tried to act responsibly, and were told by higher ups to just make the loans. Many quit their jobs, unwilling to screw their customers, others were fired for being moral actors, a lot just shrugged and went ahead, because after all they had their own situations in need of tending.)

Now, if you, Representative Consumer, have a major case of the Wants and go to a bank to get a loan to satisfy it, and the bank says no, according to these guys over here (the CFPB or some similar agency) we can’t make those kinds of loans to people “like you” and you get annoyed because you still have your case of Wants, you might want to consider that you just can’t afford it. And if you do get that loan, eventually you may default and that will hurt other people.  If enough of you say be damned to “afford” and force the lending institutions to hand over the loans whether you can afford them or not, and most of you default, well, a lot of bad shit happens. (In reality, though, no one had to force the banks to do anything, because the real money was being made on bundling—part of the whole credit default swaps thing that even insiders had a hard time understanding—and it never mattered if anyone could “afford” their mortgage, it only mattered that they had one that could be bundled and sold with thousands of others.  Small banks got hurt, homeowners got hurt, but the major financial institutions made out, as they say, like bandits.)

So when critics of regulation claim that the 2008 crisis was really the fault of the people receiving those loans, they have a point.  Not much of one, but enough that it can’t be ignored.  But that point is like pretending one tree is a forest.  (Even so, if that one tree catches fire…)

When people who should know better—and do, actually—oppose regulations to keep you from being abused by a system that has no regard for your dreams or your situation, you should be very angry with those people.  You shouldn’t be voting them back into office.  They are not on your side.  They see you as sheep and they want to make it easier for you to get sheared.

Because those loans were not made in good faith. Those loans were bait. Those loans were made to be swallowed so all the rest of your money could be reeled in. Once you made one of those loans, your money ceased to be your money—for a long time.

We might debate that things are not that simple, but let’s be honest—they are that simple. A banker tells someone they can afford a loan that will consume up to 70% of their monthly income—or more—and if you don’t have the savvy to know you’re being suckered, while it may technically be your responsibility when you go ahead and take those terms, we all know an agreement based on a lie is in no one’s best interest.  Lie?  It depends on how you interpret “afford.”  If one side of the discussion is depending on the vagaries of language to get in the other side’s pocket, the result is dishonest.

Why are so many people so willing to be had?

 

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