Monday, May 14, 2007

Off Topic

When I started this blog I intended to write mostly about matters of a literary nature, unless I could use books or my work as a librarian as a jumping-off point to other topics (e. g., the links in One Nation/One Book).

But frankly I am so enraged by the subprime lending and student loan industries that I know I won't be able to think about anything else until I vent. I had heard stories of the utter venality of subprime mortgage companies before, but yesterday's story on Ameriquest left even me shocked: former employees spoke of giving false income figures for applicants so they would qualify for higher mortgages than they could afford; others described inserting extra paperwork into the stack of forms that applicants signed. The result was that applicants thought they were agreeing to mortgages with fixed payments whereas they were signing contracts that stipulated their monthly payments could be raised at any time. Of course, to subprime mortgage companies it doesn't really matter if these people default on their mortgages or not; because by the time they do, the mortgage contracts will have been sold to another company.

The stories about "preferred lenders" have been almost as infuriating. University financial aid offices maintain lists of "preferred lenders" (companies that provide student loans) towards which they steer their incoming students. The problem is, these companies often did not get on these lists by offering the best deals to students. They get on these lists by providing gifts to university employees or paying kickbacks to the universities themselves. One lender agreed to pay Drexel University $250,000 in exchange for listing as a preferred lender. The financial aid director at the University of Texas actually owned stock in a lender with which the university worked (he's been fired). The average student finishes college with $19,000 in student loans. Their universities could at the very least provide them with the most advantageous terms for such monstrous debt.

And then there's the separate issue of the obscene cost of a university education. Tuition and fees at public universities have increased an average of 35 percent in the last five years. Meanwhile, real wages have fallen. The average student graduates owing $20,000. The student loan companies better think more about sweetening the deals for their real customers--the students--and less about gifts to universities. If college costs keep spiraling, don't they realize that many young people simply won't be signing up for student loans, because they won't be going to school at all?

It is as if the most powerful institutions in our society have declared war on everyone who's not wealthy. The short-sighted ways in which companies such as sub-prime lenders pursue profits and the Shylockian game of financial aid are likely to prove destructive to the well being of the very businesses guilty of such practices. Ultimately the health of individual businesses is linked to the health of the economy, which depends on people having money to spend. People who have just lost their homes are unlikely to be spending money. Neither are twentysomethings in debt for more money than they've ever made.

Ever since Reagan untied the regulatory leashes, American businesses have been acting like wolves. And the American people are one big herd of sheep.

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