March 02, 2005

Regulation Or Revolution?

Over at the Mother Jones' blog, it's anti-big business rhetoric from me with commentary on the bankruptcy bill. In truth, I don't usually go in for this sort of thing, but in the case of the lending industry, it seems that the myriad of problems (aggressive loan-pushing on borrowers already in debt, predatory lending, etc.) surrounding the lending industry really do call for drastic action. Personally, I'd go full-on socialist and endorse tight limits on interest rates (and, yes, we could tie rates to inflation to prevent another Savings and Loan debacle). No more wild "last resort" credit card offers. No more unaffordable mortgages. No more predatory practices ("balloon?" half-balloon?"). If you can afford to borrow money, you get to, otherwise not. Of course, doing so means that it will be harder for low-income families to gain access to credit, and that's a problem that needs to be thought through seriously. (Whether low-income borrowers would be worse off, though, seems wholly unlikely.) On the housing side, meanwhile, returning to a greater emphasis on rental assistance rather than "homeownership for the unready" seems entirely sensible, if a bit paternalistic.

Now advocating drastic action is enough to give me pause, so I should say that there's also a dissenting argument out there worth highlighting. Todd Zywicki's big paper (pdf) on the topic argues that the drastic rise in bankruptcy over the past 20 years can't be explained by the deteriorating financial condition of families. In fact, he says too-lax bankruptcy laws really are the problem. Since I haven't seen anything close to a refutation of the study, I'll put it out there, and hold off on the "doomsday solution" until I'm a bit more confident about all this.
-- Brad Plumer 1:27 PM || ||