This is especially true in the current cycle which has, with this federal bailout assistance, enabled credit lending institutions to engage faltering consumers with an outright level of aggression. For lenders, first and foremost in the mortgage lending department and, secondly, in the capacity of lending in general, the current economic situation has spilled over into a struggle for everyday borrowers, and in many cases, those who had previously been considered unlikely candidates for conflict in attempting repayment of loans.
However, conditions are now such that “as U. S. home prices fall and banks tighten lending standards, people with good, or prim, credit histories are falling behind on their payments for home loans, auto loans and credit cards at a quickening pace, according to industry data and economists. ” (Bajaj, 1) This represents an economic breakdown which in many ways runs far deeper than our economic leaders have been willing to admit. Today, the rise in gas prices has reached dramatic and troubling proportions. At present, the cost of a gallon at regular or non-premium is coming at close to $4 per gallon.
This has been wildly damaging to the value of the dollar, which continues to tumble due to its dependence and the dependence of the American economy on the import and burning of petroleum. And quite in fact, due to the relationship which has become inextricable between the world’s prior standardization of the dollar and its basis in the world oil supply, economically savvy parties throughout the world have rejected the dollar in favor of stronger forms of currency such as the Euro or the Pound.
This is especially justified by the very clear challenges now facing American consumers, whom it may largely be said are the only hope for restoration of the dollar’s value, the strength and dynamism of the American marketplace and the ability of the federal reserve to actually raise interest rates which might help to reduce cost-inflating speculation in the global oil market. These are all conditions which are quite far outside of the pale today, given the severity of the credit crunch and the general pressures for economic sustainability facing even previously comfortable Americans.
Such is to say that the subprime mortgage crisis, largely precipitated on the premise that America’s more strongly situated economic participants in the market would be sufficient defense against the irresponsibility of lenders and the economic shortcomings of borrowers. It was this sense of insulation that stimulated a flurry of aggressive lending practices under terms which poorly situated buyers have been quite unlikely to pay. Though this was not unanticipated, what had been unanticipated was the fall-out for the previously reliable consumer.
It would seem that lenders and government authorities simultaneously underestimated the extent to which the tumbling dollar has truly hurt the American consumer. Following two decades within which the average consumer was encouraged by the wild excess of the American stock market to invest liberally, it is today quite the opposite case that the average American’s insulation within the dollar’s system has hurt him severely as both an investor and as a participant in a flailing economic system.
Thus, now even by mortgage repayments, credit repayment has generally become difficult for even formerly ‘prime’ borrowers who might have actually been suitably entitled to a loan. This is to say that “until recently, people with good credit, who tend to pay their bills on time and manage their finances well, were viewed as a bulwark against the economic strains posed by rising defaults among borrowers with blemished or subprime credit. ” (Bajaj, 1)
Ultimately, this is indicative of what has occurred and what continues to occur to the extreme detriment of American stability. Namely, the persistence of lenders to hook on to poor candidates for borrowing has passed on the considerable damage to our economy of unnumbered repayment defaults to those who had previously been its lifeblood. Of course, as this occurs within the context of a devalued dollar, rising costs of living and fueling, it becomes increasingly a challenge for average Americans with responsible financial history to persist.
With repayment, borrowing and lending down and collection efforts and defaulting up, investment by lending intstituions or private citizens in the types of opportunities that produce economic growth are increasingly rarified. This is sheer evidence of our mounting depression.
- Bajaj, V. & Story, L. (2008). U. S. mortgage crisis spreads past subprime loans.
- International Herald Tribune. Online at http://www.iht.com/articles/2008/02/12/business/12credit.php