A NYTimes story in yesterday’s paper (click here!) talks about the trillions of dollars that eveyone borrowed in home equity loans during the boom times.
Remember all the ads that said “Want a vacation? Put it on the house!” and it is no coincidence that the phrase “on the house,” denotes “free” in your mind. That’s precisely what they wanted you to think. The discovery that you had to pay it back was supposed to come later.
Interestingly enough, according to the article, now “free” is the meaning that is becoming true. Second mortgages are going unpaid in increasing numbers, and homeowners are threatning the banks with default if the bank doesn’t let them alone.
Which means all the junk they bought with those home equity loans — cars, vacations, ipods, dental work, the wife’s new boogs, whatever — really will be, ultimately, free.
Not really free, of course. All that money, by not being repaid, is souring the credit markets, making other loans harder to come by. Because the loans were back by value in homes that has now disappeared, it is going to be impossible to get it back. Banks are showing profits, but with less money to loan floating around, the economy as a whole will suffer.
Which means unemployment stays high and all the rest.
It also means that you and I who saved up money and bought things, and paid our debts, are once again being played for saps.
If it were up to me, I’d demand the banks go after every one of these deadbeats hammer and tongs — a national lesson that you can borrow, not pay back, and suffer no consequences, is a very bad lesson indeed. The sight of a few of them living on the curb might scare the rest into more responsible fiscal practices and then the nation as a whole will be better off.