Big loans, financial publications inform us, are back. Indeed, they are even bargains; you, too, can pick up a jumbo loan at appealingly low interest, assuming you meet the standards to access the credit market, which is not in fact a given. The return of jumbo loans is being heralded in some corners as a good sign for the housing market. Surely, it must be rebounding, if we’re back to selling monstrous houses at appallingly high prices.
It appears that we have learned virtually nothing from the financial crisis, which is still ongoing. We cannot seriously say we are in recovery with rising unemployment and class disparities, a housing market that is clearly highly unstable, a massive ‘ghost inventory’ of foreclosed and preforeclosed homes that are lurking, waiting, ready to flood the market and cause another dip in prices. Policy has kept home prices artificially high in many regions but the bubble is showing clear signs of deflation in these areas, finally. There are only so many fig leaves available and we are running out of them.
The financial industry earnestly promised that it had learned, that it would be better about self regulation. This is manifestly untrue at this point, and the government’s attempts to reign in the industry have been hampered, continually. Every piece of legislation, every new rule, is defanged to the point that it might as well be a floppy noodle thrown in the general direction of Wall Street, thanks to the attentions of lobbyists and members of government itself who do not want to see the industry heavily regulated. Who may, in fact, have a vested interest in maintaining the state of poor regulation, because it is profitable.
Savvy investors and market players know that they can make a profit whether the market is moving up or down. And many made a killing off the exploitation of people who were not financially literate, or who were forced into untenable positions, with not just housing loans but other forms of credit. Car loans, payday loans, student loans. People were sold a bill of goods that they didn’t know how to investigate by financial firms with an interest, of course, in their bottom line; these companies do not provide credit, loans, and access to the market solely out of the good of their hearts, but to make money. Preying on people who are poor, or not familiar with the workings of the financial system, or both, can be immensely profitable, between high interest rates and default fees and the ability to manipulate credit ratings to force people into increasingly worse situations, as credit consumers.
The financial industry didn’t want to change because it knew that this is profitable; it runs a high risk, of course, of having those profits blow up in its face, but as it discovered to its delight under President Bush, even when it blows up, the industry won’t have to pay the price and bear the consequences. The government engaged in a bailout, ostensibly for the good of the people, that benefited the financial industry while offering very little hope to individuals. A move like bailing out homeowners would have had a similar impact, and also helped individual people who were struggling, but the government didn’t do that. It focused on the plight of the banks, and on rescuing the markets, not the people.
The government, and the financial industry, both claimed that rescuing the markets rescued the people, but where is the evidence of that? Unemployment rises, the gap between rich and poor increases, and the financial industry has finally openly returned to old ways, instead of just merely hiding the old ways under a shiny new veneer. It has no fear, no worries, no concerns about sudden regulation, because it knows that the government won’t act against it, will not move to rein it in. It can continue to rake in record profits at low, low risk, because Uncle Sam will always be there to help out when it gets into trouble.
I am not surprised by the news that many of the same practices that created the economic meltdown have returned; this isn’t even the first time I’ve written about this issue. It’s not that they ever really stopped, and more that the financial industry kept them under wraps until it felt that enough time had elapsed for it to be able to be blatant about it again. Now, instead of being viewed as a warning sign, an indicator that we have not learned our lesson and could face another economic implosion, it’s being viewed as a sign of recovery, and is touted by economic boosters as evidence that we are on the right track, that things will get better.
As indeed they will, at least for the financial industry, which can once again engage in highly exploitative and extremely profitable activities, with the blessing of the authorities. The industry can hawk its new exotic derivatives and sketchy loans and everything else, resting in confidence that it enjoys the support of the people who matter; the industry itself, members of government, regulatory agencies. Exploitative practices should be condemned out of hand because they are wrong, but they won’t be, because what is bad for the people is not necessarily bad for the movers and shakers in the economy, and they are the ones with the power to decide what should be regulated, and how, and when.