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August • September 2007 • Vol. XXV No. 6 • An Arnold Publication |
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From the Editor— Time to Reinstate the Usury Laws? |
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This editor starts his day watching the stock market shenanigans. Yesterday was exciting to say the least. The Dow Jones industrial average fell 387 points, the biggest drop since March. This morning, when I looked it was down again. Why? According to a Wallstreet Journal news story, the market fell yesterday because BNP Paribas SA, France's largest bank by market value, announced that one of its units was suspending three of its asset-backed securities funds. Apparently that bank said it could not value its funds accurately because of problems in the U.S. subprime mortgage market. In case you haven’t looked it up, the subprime market is the name given to all those lenders who target borrowers with credit problems or limited credit histories, people who ordinarily don’t qualify for cheaper, so-called “prime” loans. Customers of these subprime lenders are people whose credit ratings in the past would have prevented their getting loans in the first place. So now comes the meltdown. Why? It ain’t rocket science. It seems that during the recent real-estate boom a lot of lenders went crazy using predatory lending practices. They lured people into homes they couldn’t afford with very high points and fees and unfavorable terms and conditions such as balloon payments, high prepayment penalties and negative amortization. Then the rising real-estate elevator hit its top floor with a jolt and prices started coming down. The variable interest rates on the subprime loans started climbing, balloon payments started coming due and, guess what. Not surprisingly, foreclosure rates have skyrocketed among those subprime borrowers. A number of the larger firms that specialized in what some are calling “predatory” loans now face huge losses or even bankruptcy. It may sound callous or mean, but this editor says fine! If they can say “Let the borrower beware!” to their customers. I can say to them, “You played with fire, now reap what you sowed.” I remember a time when it was hard to borrow money, a time when you had to have good credit to buy anything. I remember a time when any interest rate over 10% was considered usury and could be prosecuted under the law. Now our mailmen groan under the loads of junk mail offering incredible deals from every kind of lender imaginable at rates exceeding 20%. Easy money, right? Take a vacation! Just don’t read the fine print! What can be done about all this? Maybe nothing. On the other hand, maybe it’s time to reinstate the
usury laws. |
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