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Thursday, Feb. 7, 2008 10:07 am

Swimming with sharks

Calming these troubled economic waters won’t be easy

Untitled Document There was a time, not so long ago, when adjustable-rate mortgages were just as unusual and as mysterious as cell phones and state-sponsored lotteries. The notion that an interest rate could change during the life of a mortgage loan seemed, well, unconventional and fraught with risk — for the borrower. But in 1981, when I first wrote about ARMs as a young reporter, interest rates had already climbed to places that no one ever expected, the country was in a serious recession, and the housing market was at a standstill. Fast-forward to now, to our current recession — and everybody’s talking about interest rates, housing values, and mortgage lending. Specifically, the focus is on subprime-mortgage lenders — the companies that started imploding last summer when so many borrowers started defaulting. This collapse was bound to happen. These predatory lenders had sucked in people who shouldn’t have been buying houses — people with marginal credit, rocky job histories, and paycheck-to-paycheck lives. They did it by offering low closing costs and down payments, or none at all, plus low initial interest rates. Then they whacked borrowers in the fine print — huge rate increases and prepayment penalties. These practices were something this paper was pointing out three years ago when we examined the problems with Ameriquest, one of the nation’s leading subprime-mortgage lenders [see Rich Lord, “Penalizing homeowners,” Jan. 27, 2005, available at www.illinoistimes.com]. For the sharks who made these usurious and immoral loans, there really wasn’t a downside — most just transferred the risk to other investors. For the individual borrowers, the ones who gambled and lost, it was a different story: They now face long years of debt, wrecked credit, and even, in some cases, homelessness. The knee-jerk response is to immediately look for ways to prop up this house of cards. That’s why political leaders are rushing to embrace interest-rate cuts, tax rebates, and loan moratoriums. It’s as though a little bit of government intervention, some tweaking around the edges, could set everything right. These measures won’t be enough. They have all the logic of somebody drowning in debt borrowing more money to pay off creditors. Our economic problems are deep-seated and structural; they won’t be fixed by an emergency meeting of the Federal Reserve Board or a bill passed by Congress or even a new president. And you don’t have to be an economist to know that that’s true. Just do what I did on Sunday. Go shopping. While I was wandering around Kmart on Wabash, I briefly checked out the clothes on sale. I ended up buying two nice shirts for $15. When I hung them in the closet, I noticed that they were both made in Bangladesh. It made me curious: Is any shirt I own American-made? Not one. The labels tell the story: India. Sri Lanka. The Philippines. Hong Kong. Korea. Twelve years ago, as a projects reporter for the daily paper in Memphis, I was looking into the impact of Bill Clinton’s North American Free Trade Agreement and tracking the manufacturing jobs in our region that had been swept away. One of the places I visited was Des Arc, a small community in eastern Arkansas where a shirt factory had closed — the jobs were moved out of the United States. I spoke to former workers, community leaders, and company executives. “Obviously we’d prefer to make them in the U.S.,” a company vice president told me, “but if the customers won’t pay more for the shirts — then you’ve got to make ’em wherever you can make ’em and sell ’em.”
The shirt company’s main customer was an Arkansas-based retail giant everybody knows: the home of everyday low prices. Wal-Mart was notorious for pushing suppliers to lower their costs, and other retailers struggled to compete. The consequence? More and more jobs were moved overseas, where people worked for a lot less.
Arkansas, Bill Clinton’s home state, has seen more than 50,000 manufacturing jobs disappear since the implementation of NAFTA. All across the country, good private-sector union jobs have disappeared, and real income for most Americans has stagnated. Think about how many people you know, other than government workers, who have meaningful benefits such as employer-provided health insurance or a retirement plan. Yet, despite this generation-long decline in our standard of living, we’ve managed to borrow the illusion of prosperity and stability. We’ve acted against our very own interests when we go to work, when we shop, and when we vote. Now the sharks are circling. There’s nobody to protect us. And there’s nobody to blame — except ourselves.
Contact Roland Klose at editor@illinoistimes.com
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