I've been a nag about how many media outlets have been wrong about the reasons for the current economic breakdown we're experiencing. So many pundits who don't understand Wall Street want to make it political, and subsequently blame President Bush for "deregulating" Wall Street (not the reason, and besides, President Clinton and then Treasury Secretary Robert Rubin triggered deregulation back in the 1990's).
No, the real reason has been about housing and credit. More to point, while investment companies have behaved horribly and hid the damage from toxic mortgage paper they own, the American homeowner, who has been living on credit and beyond his or her means, is at the top of the list of culprits. Sure, banks and lenders made it easy to borrow money; and yes, the fine print tripped up armies of mortgage borrowers. But in the end, our generation thrived on credit and never gave any thought to the concept that what goes up (housing prices) must come down.
But that is changing.
Goldman Sachs has issued an interesting report stating that now, the economic crisis is turning away from housing and real estate, and toward the credit markets. Instead of blaming housing depreciation for the mess we're in, Goldman says that now "the cycle is broadening and unemployment is replacing home prices as the "main loss driver."
The unemployed, especially ones who purchased homes they can't afford, represent the next wave of foreclosure victims, supplanting the sub-prime borrowers who fueled all the headlines for the past year. Experts say more foreclosures are to follow, and from once-affluent homeowners who have lost jobs and can't find new ones. That should keep home prices down for a while and keep the recession around longer than we historically see. Most recessions come and go within a year - not this one. Low housing prices and lost jobs should keep the economy down for 18 months, according to most of the projections I see.
One good piece of consumer finance ness comes from the world of high technology and has a Wisconsin dateline. Earlier today, a state court of appeals ruled that a debt collection company must pay damages to 7,000 Cingular Wireless customers in Wisconsin for illegally charging fees.
According to a Reuters dispatch today, Bloomington, Ill.-based Afni, Inc. charged customers collection fees equaling 15 percent of the money they owed Cingular, which has since been bought by AT&T. The 7th Circuit Court of Appeals said that fee was not allowed under Wisconsin law or their cell phone contracts and violated the Fair Debt Collection Practices Act.
The real issue here was that Afni had no legal right to charge customers an added 15% of their original balance for late payments that entered into collection status. A state judge had originally ruled the company had no authority to impose collection fees since they were not authorized by the customers' cell phone contracts with Cingular. Wisconsin law only allows third-party debt collectors to charge fees, the judge said, and not companies who "own" the debt such as Afni, which purchased delinquent accounts from Cingular.
We're going to be seeing more and more court cases involving the interest and penalties that businesses charge from customers who are behind on their bills. So far, the first blow has been struck, thankfully, for the consumer.