Saturday, September 22, 2007

Get A Loan ... Get A Life!

When we refinanced our house in early 2003, the mortgage broker who conducted our preliminary phone interview inquired about our total household income. I gave him the number. "OK," he said, "What about debt?"

"Just the mortgage," I said.

"That's it? No other debt?"

"No."

"Wow," came his reply, "You need to get a life."

And there you have it. In contemporary America, it is no longer fashionable to be financially conservative. It's not even acceptable. Now you are considered a freakish loser unless you have bought into the have-it-all-and-have-it-now mentality that is so culturally pervasive.

Now don't get me wrong. I am well aware of the fact that my family has been materially blessed. I also know how many folks struggle to make their financial ends meet. But that's not what I want to address here. My beef is with the entitlement mindset which promotes the notion that, no matter what your financial position is, you deserve more. Society owes it to you. It comes with your right to be "happy."

I am contending that the financial crisis du jour -- the sub-prime lending crisis -- is not a problem with the market, it is a problem with our mindset. I am arguing that the market is always "right" in that it reflects the trajectory of societal values. Seen that way, the sub-prime lending crisis with which the financial markets are currently contending is nothing but a mirror into the collective American soul. And if you look closely enough in that mirror you will see the ugly reflection of an ancient and continuing idolatry.

What is a sub-prime mortgage anyway? Chuck Colson gives a nice summary:
The sub-prime market is for people who cannot qualify for conventional mortgages, many because of their credit histories, others because they want to borrow more than they can truly afford. So why would mortgage lenders make such risky loans?

Well, some years back, Wall Street came up with a clever way to increase profits. They could buy mortgages from banks, package them into what are called mortgage-based securities, and sell them to clients—good for Wall Street, but it quickly led to some unintended consequences. With the housing market booming, there was a huge demand for credit. Every bank, savings and loan, or Internet start-up started promising money to people who wanted to buy a home ...
Lenders knew, or should have known, that many of these sub-prime loans were foreclosures waiting to happen. But they couldn't care less, because they could offload these mortgages to the new secondary mortgage market on Wall Street.
And so the buck of irresponsibility got passed ... over and over again ... from individual homebuyers, to mortgage houses, to Wall Street, each with the same goal (material wealth as happiness) based on humanity's most foundational flaw.

In his book, Idols for Destruction, Herbert Schlossberg devotes an entire chapter to root of this issue. Even though he originally wrote the book 24 years ago, the problem he addresses is as old as the human race itself. It is greed, envy and self-satisfaction that thrives in a more more modern form we call inflation. Here's the former Marine version of a definition for inflation:

We want more stuff. This is the idolatry of material wealth as a form of coveting. We have to keep up. We need the latest gadget. We like our stuff. But we need money to buy that stuff. The government, in order to placate the covetousness of the masses, prints more money. Doing so creates the false impression that wealth is increasing, even though the "wealth" is built on a balsa wood foundation. With more money, we buy more stuff and the downward spiral continues. As Schlossberg puts it ...
Inflation has both moral and economic consequences. It discredits whatever economic system it is part of because it removes any perception of justice that might otherwise be present. Instead of rewarding enterprise and punishing indolence, it "bestows affluence here and embarrassment there," as Keynes put it, "and redistributes Fortune's favors ..." Since it permits the accumulation of profit without the need for productive effort, inflation discredits enterprise. Wealth is obtained by plunging into debt, using borrowed money to buy commodities of real value that tend to rise in value at a faster rate than the currency is depreciating. People thus receive wealth without producing anything of value. (p.99)
Can you say, "Real Estate Bubble"?

This is exactly where we are today. The "sub-prime" lending market has only accelerated these inflationary trends by making it easier to borrow money we cannot afford to repay. But while the markets are being demonized by grandstanding politicians, those markets gave consumers nothing they didn't demand. Yes, lenders fueled the inflationary fires, but the fires got started inside each and every money-borrowing human heart, by an insatiable desire for more stuff, combined with the equally obstinate denial that being in debt is not only fashionable but a status for which they deserve no personal blame.

For evidence of this, look no further than this L. A. Times story warning that "Danger Lurks for Debtors," about the Federal Reserve's recent interest rate cut. The writer sees the Fed's attempt to halt looming recessionary fears as problematic to borrowers who, because of lower interest rates, will be tempted to go further into debt. His example? A 27-year old Long Beach resident who ...
... owes about $93,000 in credit card, phone, utility and hospital bills. "When my bills come, I know I don't have any money to pay them," he said. "So I don't bother anymore."

Nevertheless, [he] said he gets pitches from credit card issuers in the mail almost every day. If those pitches become a smidge more attractive because of lower interest rates, he may just be tempted to go even deeper in the hole.

"It's amazing," [he] said. "You keep saying no, and they just keep making more offers."
Got it? Borrowers find no fault with themselves. Instead, all blame for this financial fiasco lies with lenders who continue to "tempt" them. But no one forced these borrowers to borrow. Each made a free-will decision to do so. Yet society tells us to cast blame elsewhere, while an L. A. Times writer (in this specific case) enables the self-destructive mindset that led to the whole debacle.

This "idolatry of mammon" (as Schlossberg calls it) is nothing but the self-centered capacity for man to seek fulfillment in the trappings of the creation instead of in a proper worship of the Creator. Until that ends our folly will continue. My prayer is that our society will wake up to this fact before the mountain of debt we have collectively created collapses into a financial sink hole that engulfs us all.

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