Spring Break
Borrowing beyond means causes debt
Predatory loaners are not the cause of the economic crisis, irresponsible borrowers are.
By: Travis Holland
Issue date: 11/4/08 Section: Opinion
Predatory loans didn't cause an economic crisis. Predatory loans didn't bankrupt America's financial institutions. That's because predatory loans don't exist.
However, stupid people do exist.
The whole problem with the catch phrase "predatory loans" is the predatory part. There is no such thing as a predatory loan.
Dozens of legitimate credit devices have been coined predatory. One example is credit cards. This is a perfect example of grossly misplaced blame. Credit card companies lend money and charge exorbitant interest rates when the payments are late. If people paid on time, there wouldn't be a problem. If they can't pay at all, they shouldn't swipe the card.
The credit card companies haven't done anything devious here. They loaned money at a predetermined interest rate, and customers have to pay that rate.
The Economist magazine, CNN and other media outlets have defined subprime mortgage loans as predatory lending. A subprime mortgage loan is one in which the borrower has a bad credit history, and the lender charges him a higher interest rate to make up for it. Again, there is nothing predatory about these loans.
Banks tell these subprime borrowers up front that they will pay a premium on their loans. These customers know how much they will have to pay. And yet, when they default on the loan a few years down the road, it becomes a "predatory" loan.
It's ridiculous to blame a lender for letting a customer borrow money. The blame should rest squarely on the shoulders of the irresponsible people who continue to borrow beyond their means.
The real problem is negligent borrowers. Americans' love of living beyond their means is the real cause of what many call predatory loans. No bank can force anyone to take a loan.
Borrowers need to be more responsible, and not sign contracts to make payments they can't afford. It sounds like common sense, and it should be, yet countless Americans are hopelessly in debt because they didn't do that.
Many people point to those who are being evicted from homes they have lived in for years, and say this isn't fair. It sounds harsh, but it's those people's own fault. Again, this is just a case of irresponsible borrowing. If you take a loan to buy a house, it is the bank's property until it's paid off - everyone who borrows knows this. The reality is that not everyone can afford a house, so some people must find an apartment or another place to live.
It is true that many banks made unwise decisions with their lax lending practices, and that is why they are in such dire straits now. But it is certainly not their fault customers took on those loans when they were unable to pay for them.
Americans need a lesson in fiscal responsibility, not protection from the mythical creature that is predatory lending. Until people stop borrowing irresponsibly, defaulted loans and credit problems will continue. Either way, so-called predatory loans are not to blame.
However, stupid people do exist.
The whole problem with the catch phrase "predatory loans" is the predatory part. There is no such thing as a predatory loan.
Dozens of legitimate credit devices have been coined predatory. One example is credit cards. This is a perfect example of grossly misplaced blame. Credit card companies lend money and charge exorbitant interest rates when the payments are late. If people paid on time, there wouldn't be a problem. If they can't pay at all, they shouldn't swipe the card.
The credit card companies haven't done anything devious here. They loaned money at a predetermined interest rate, and customers have to pay that rate.
The Economist magazine, CNN and other media outlets have defined subprime mortgage loans as predatory lending. A subprime mortgage loan is one in which the borrower has a bad credit history, and the lender charges him a higher interest rate to make up for it. Again, there is nothing predatory about these loans.
Banks tell these subprime borrowers up front that they will pay a premium on their loans. These customers know how much they will have to pay. And yet, when they default on the loan a few years down the road, it becomes a "predatory" loan.
It's ridiculous to blame a lender for letting a customer borrow money. The blame should rest squarely on the shoulders of the irresponsible people who continue to borrow beyond their means.
The real problem is negligent borrowers. Americans' love of living beyond their means is the real cause of what many call predatory loans. No bank can force anyone to take a loan.
Borrowers need to be more responsible, and not sign contracts to make payments they can't afford. It sounds like common sense, and it should be, yet countless Americans are hopelessly in debt because they didn't do that.
Many people point to those who are being evicted from homes they have lived in for years, and say this isn't fair. It sounds harsh, but it's those people's own fault. Again, this is just a case of irresponsible borrowing. If you take a loan to buy a house, it is the bank's property until it's paid off - everyone who borrows knows this. The reality is that not everyone can afford a house, so some people must find an apartment or another place to live.
It is true that many banks made unwise decisions with their lax lending practices, and that is why they are in such dire straits now. But it is certainly not their fault customers took on those loans when they were unable to pay for them.
Americans need a lesson in fiscal responsibility, not protection from the mythical creature that is predatory lending. Until people stop borrowing irresponsibly, defaulted loans and credit problems will continue. Either way, so-called predatory loans are not to blame.
Be sure to include your name, major, and class year. Submissions without this information are subject to deletion.
By submitting a comment, you agree to thebatt.com's Terms of Use.
You may also send a Mail Call to The Battalion at mailcall@thebatt.com