Page 16 - Book1E

8
A Brief History
As Warren and Tyagi explain, it didn’t take long for local politicians across the country to realize that if they raised the interest-rate ceiling, banks and other lending institutions would flock to their states, bring- ing new jobs and corporate tax revenue. “Sure, there might be some hardship for families that stumbled into high-interest loans they really couldn’t afford. But most of the hardship would be exported to the residents of other states, while the benefits—jobs and tax revenues— would stay local.”
Only a generation ago, the average family couldn’t get into the kind of financial hole that is so common today, simply because a middle-class family couldn’t borrow very much money. “High-limit, all-purpose credit cards did not exist for those with average means,” the authors report. “There were no mortgages available for 125% of the home’s value and no offers in the daily mail for second and third home equity loans. There were no ‘payday lenders,’ no ‘live checks,’ no ‘instant money,’ and certainly no offers to ‘consolidate’ all that debt by moving it from one credit card to another.”
“Over the past decade, bad debt losses and loan write-offs have soared, but profits have risen even faster. In this new sky’s-the- limit world, the stern-faced banker and the long application forms have been replaced by chirpy advertisements and ‘pre- approved’ credit offers. Banks can now lend to anyone and everyone (including those in financial trouble) and still make a handsome profit.”
— Elizabeth Warren and Amelia Warren Tyagi, The Two-Income Trap
According to the National Bureau of Economic Research, the recession began in December 2007 and was linked to reckless lending practices by financial institutions and securitization of real estate mortgages. Even though the Great Recession of 2008 officially ended in June 2009, economic hardships continue to abound with persistent high unemployment, the continuing decline in home values and increase in foreclosures and bankruptcies. In addition, the federal debt crisis esca- lates, and rising gas and food prices have hit our economy very hard.