Hat Trick!

Greenspan Week concluded on Friday when the Chairman spoke about Consumer Finance at the Community Affairs Research Conference in Washington. CNN/Money neatly summarized the message in their headline Greenspan: More credit is a good thing, but they left out the most important, and most disturbing parts of the speech.

For those who say that the Federal Reserve controls interest rates and liquidity only, and that it has little or no influence on where the money goes - read on. Amazingly, in this speech, sub-prime lending is presented as a great success story, not a potential problem - the potential problem, as identified here, is that too many people are being excluded from acquiring credit!

"Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s."

So, Ameriquest is good for America - that's the message. Has he read any of the newspaper accounts about how sub-prime borrowers are surprisingly clueless about all things financial, and that, many of them, when they are told that they can have that nice house down the street, that they just sign on the dotted line?

"For some consumers, however, this reliance on technology has been disconcerting."

Disconcerting in that lenders are extending credit to people who ten years ago would never, ever been extended credit? No ...

"Consumer advocates contend that the lack of flexibility in the models can result in the exclusion of some consumers, such as those with little or no credit history, or misrepresentation of the risk that they pose."

You see the real problem is that some consumers are excluded or charged too high an interest rate - we must find a way to allow more people to borrow more money ... amazing.

"Home ownership is at a record high, and the number of home mortgage loans to low-and moderate-income and minority families has risen rapidly over the past five years."

Yes, the foundation for the house of cards we call the housing boom consists of lower income and minority families, many of them sub-prime borrowers, who are achieving the American dream that they once thought was impossible - making first time home purchases of overpriced real estate with loans that they do not really understand ... the most marginal of all borrowers seizing the day.

"The more credit availability expands, however, the more important financial education becomes. In this increasingly competitive and complex financial services market, it is essential that consumers acquire the knowledge that will enable them to evaluate products and services from competing providers and determine which best meet their long- and short-term needs."

Yes, we live in an ownership society and we must all educate ourselves - acquire the knowledge to evaluate different and better ways to go further into debt. Maybe as part of this educational process, people will at some point learn that while they thought "ownership society" meant owning their home - what it really means is owning the debt.