Since the financial meltdown plunged the world economy into crisis last fall, every sane person (a category that does not seem to include financial-industry lobbyists) agrees we need better regulation. Pension funds and others are hopping mad that the complex Wall Street products they bought, many rated AAA by private companies such as Moody’s, are actually “toxic” and near-worthless. The whole planet is angry to find that, by letting Wall Street make up new financial architecture as it went along, we brought on the burst-bubble collapse now raining chunks of debris on our heads. President Obama has sent Congress a proposal for better regulation.
But if Wall Street needs some rules to keep elite, well-educated financial players from getting themselves and us in trouble—and boy, do we ever—then this argument applies even more to Main Street, where the working poor and middle class are increasingly faced with financial predators.
Exhibit A: payday loans and their just-as-evil twin, car title loans. Designed to be hard to pay off so that borrowers must repeatedly renew, these are heavily marketed to the poor, particularly communities of color; a typical borrower will pay $500 in interest on a $300 loan.
Obama’s proposed Consumer Financial Protection Agency might be empowered to reign in those financial predators, but it won’t help with another problem that’s just as bad: the 2005 bankruptcy law changes, which tilted the scales in favor of credit card companies by requiring many families in trouble to stay stuck in debt, making payments for years.
Recently, Congress has taken a few useful steps, such as reining in some of credit card companies’ most abusive fees and arbitrary interest-rate changes, but much remains to be done to get our financial-rules house in order. For example, bankruptcy judges should be empowered to alter the terms of a family’s primary residence mortgage (as can already be done on vacation homes) so that recession-struck homeowners who are “underwater” need not join the nation’s growing wave of foreclosures.
The problems that affect Main Street are various, but they have one thing in common: by hurting the vulnerable among us, they are bad for us all—morally, socially, and (because extreme wealth inequality is bad for the economy) financially.
Vendors of financial products, from Lehman Brothers and MasterCard down to the sleazy car-title loans shilled on late-night TV, often paint themselves as immaculate angels of a flawless market god. The past year’s headlines illustrate that, sometimes, they are at best liars—to themselves or others—and at worst thieves. Now is the time to clean house, lay down some common-sense rules, and enforce them.
Elizabeth Palmberg is an assistant editor of Sojourners.