The Hollosphere

Thank goodness, and David Leonhardt of The New York Times, for this article on the credit crisis.

When the distress in the credit industry began to percolate last summer, I started reading a great deal more financial news than is normally my habit. I’m interested in the issue of consumer credit, having long had some vague unease about the level of consumer indebtedness that the average American carries. Opportunities to go deeply into debt abound, as anyone with an address for credit card offers to flood into can attest. The escalating problems in the credit industry got my attention in an “Oh no! I knew this house-of-borrowed-cards was going to implode sooner or later!” kind of way.

I figured that if I read enough and studied the matter I would be able to follow events and understand them, if only in a broader sense, to help me contribute to prudent decisions regarding our own household spending. Should we purchase a truck with borrowed money or cash, or not at all? Should we continue our usual spending patterns or cut back? At first, I followed along confidently in my reading of the unfolding events. But then I noticed aspects of the deepening crisis I was reading about starting to sound like some kind of made-up language.

Now, I can grasp the idea that people took risky bets on housing prices, perhaps not realizing how much risk they were really taking. My own plain-vanilla 30-year mortgage required a mountain of paperwork at both ends, buying and selling, and I think I mostly understood it, but what would a complicated, subprime, variable-interest loan look like? Yikes. It’s not hard for me to imagine people just resigning themselves, figuring there was no way they could understand the fine print no matter how hard they tried, and who has time, anyway? I can imagine them trusting that their lenders wouldn’t give them a loan that they didn’t think they’d be able to pay back. So they signed their name after a bunch of x’s and got into a big old loan they didn’t know (or chose not to see) they would not be able to sustain.

That’s easy for me to grok (and empathize with). As is the idea that as housing prices deflate, people have less wealth to throw around, consumer spending falls and some businesses experience declining sales. Some folks just plain can’t make their payments, and get stuck in a terrible position when they are not able to sell their house for enough to pay back the loan and mounting penalty fees due to a declining housing market.

I understand that investors get involved in mortgage securities, and when a large number of mortgages default, they’ve got problems. And some investors placed bets (Wall Street resembles Vegas in a pin-striped suit, if you ask me) on very risky, subprime loans, counting on the housing market to continue its steady growth. Which it did not oblige to do, and those bettors lost big. Lenders are tightening their purse-strings to reduce their risk, so less people can borrow money to buy stuff with. Dominoes, dominoes, dominoes. These are some of the many problems that I’ve read about, and are among the ideas that I can actually grasp.

But as time went along, I kept reading more and more complicated issues and lots of terms I had never even heard of, and the accompanying explanations of what the terms meant just confused me more. I read so much that made absolutely no sense to me at all that I finally resorted to skimming the financial news for grokkable bits.

Hence my gratitude for Mr. Leonhardt’s article. I smiled to discover I’m not alone in my confusion.

I’m also feeling a deep sense of gratitude for my sweet, peaceful life. I’m more in love with my sweetheart than ever. The house is paid for. We did not borrow money to buy a truck or to put on a new roof, and are not carrying any debt. Sure, we have goofy old carpeting and don’t own a car. A good deal of our furniture is borrowed or hand-me-downs. Our remodeling projects are on hold, the deck half done. Our means are modest. And yet, we are so blessed to be able to gently float along, working on things that inspire us, enjoying our simple country life and each other in peace.

I think I’m okay not completely grokking what the fuss is all about.