As the housing bubble is in full collapse and the economy begins to contract, the personal debt load of the average American becomes even more difficult to carry. Mortgages on homes that are no longer worth what is owed on them and credit cards with "adjustable" rates from 9% to 31% if a payment is missed are pushing consumers in record numbers into foreclosure and bankruptcy. But it is even more difficult to file bankruptcy now since the 2005 law changes (written by MBNA bank), and they are simply contributing to the foreclosure problem as homeowners are unable to discharge some of their debt.
In this environment, watching the documentary Maxed Out, originally released in 2006 by James Scurlock, seems eerily prescient. Almost every homeowner addicted to housing debt also used credit cards to furnish their dream homes and keep up an unsustainable lifestyle of consumption. In the good times, this can mean borrowing the money to build a home that the bank appraises at current market value (using mark-to-market accounting, which was also used by Enron). Elevators, wine cellars, numerous laundry rooms, and enormous kitchens are all must-haves for the most decadent debtors of society who lived it up during the housing boom.
The documentary examines much more of the dark side of the credit story, though, from the collectors who "put people first" to those who have been so hounded and humiliated by creditors that they feel suicide is their only option out. These are, of course, the human interest stories of the work, and every homeowner currently trying to stop foreclosure or pay back their creditors to stay out of bankruptcy will be able to relate to some of the more frustrating and disheartening moments.
It should not be any surprise that borrowers who fail to repay their loans on time are the most profitable customers to the banks. These are the people who are charged obscene interest rates and huge late fees, whose payments, which never manage to pay down the principal, make up two-thirds of these bank's profits from credit card debt.
But even when the homeowners run into a financial hardship, and pawning personal items no longer works, the defaulted debt is sold off to vulture collection agencies to continue the harassment/humiliation process. While the collectors need to tell themselves that they are "putting people first" in order to get through their day, all they really do try their best to get people facing hardships to send them as much money as possible to pay back loans that the bank knew they would never collect on and should not have loaned in the first place. "Feeding off the productive of society" would be a more appropriate way to put these activities, rather than "putting people first."
But these benevolent pirates of the collection agencies liken themselves to having their targets "walk the plank" as far as possible before they are drawn back. Using these psychological techniques that put people first, like calling the debtors' neighbors, is supposedly to allow these people the chance to get back on their feet and pay back what they owe to the banks. Of course, the agents never admit that the consumers really owe the collection agency a penny, nor that the money used to make these loans was created out of thin air at the moment it was borrowed, making it not really a loan of money at all.
But the power that the concept of money has on the uninformed homeowner facing a financial hardship can be devastating. The documentary interviews the families of people (even college students) who lost a loved one to the humiliated suicide of a debtor far beyond his means. Also interviewed are borrowers who are currently in the downward spiral, facing lawsuits, judgments, liens, and foreclosure, and who speak openly about their own thoughts of suicide as the only escape from the debt.
The two classic responses to any stress-provoking situation are commonly referred to as "fight or flight," meaning one is prone to run away from a situation or stand one's ground to meet it. Standing up to multi-billion dollar international banks and fighting against the crushing burden of too much debt is not often done by consumers, though. Far more common is falling into a deep depression and hiding from the problem, even if it leads to the loss of a home to foreclosure, filing bankruptcy, or even giving up on life in general.
The banks, unfortunately, do not care at all, as this is exactly the environment where they make the most money. Offering perfunctory admissions of being aware of complaints about their practices, and having to pay hundreds of millions of dollars in settlements for abusive lending and collecting practices are just a few of the very small repercussions these politically powerful banks must face. But the entire banking system is possibly the most successful ever created in privatizing gains and socializing losses, paying out obscenely large bonuses when times are good and receiving federal bailout money when profits are down.
As homeowners face foreclosure and bankruptcy in record numbers, the lawsuits, judgments, wage garnishments, and property value decline will continue, possibly at ever greater rates. But what do homeowners have to show for it all? They now owe more on their homes than they will ever be worth again, and the massive money creation caused by borrowing just contributes to the rising cost of living. Banks made their money and cashed out long ago, leaving the average Americans to fund the bailouts covering up this massive theft of homeowners' and debtors' wealth.
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