A couple months back my neighbor paid $5500 for a 12 year old SUV with over 200,000 miles on the odometer. A quick perusal of the used car value websites will tell you that a 200,000 mile 1997 Chevy Blazer has a street price of around $1500. Now my neighbor doesn't have $1500- she hasn't worked in this millenia and she and her husband try to survive on $1400 a month in disability benefits. Essentially she was buying credit more than buying an SUV. Another neighbor had given her a Pontiac sedan of similar vintage that had just been the receipient of $800 in repairs and got 30 miles per gallon on the highway... But like the rest of us she just "had to have" an SUV. So the paid for 30 MPG sedan was given to the used car dealer as a down payment, and she drove home with a gas hog SUV and a loan demanding 18 payments of $250 a month. $250 a month on top of the student loans coming due from when she twice started vocational college and dropped out before completing the first year, cell phones with unlimited calling plans, etc....
I suspect that credit isn't my neighbor's only addiction- she's on a ton of narcotics for a back injury. She also has not real well controlled diabetes, and I won't let her drive my car even if I'm riding with. She easily meets the definition of a vulnerable adult under Minnesota law. But while a health care facility cannot legally take advantage of a vulnerable adult under Minnesota law, a car dealer, finance company, or bank can.
So let's retrace this deal- the dealer took her $1000 car and for $4500 paid over 18 months gave her a $1500 SUV- that's a pretty nice profit margin. I doubt the dealer made the loan themselves, and they're a franchisee of a national chain of used car dealers. That loan was probably bundled with thousands of other high risk high interest ones, then sliced and diced into shares and sold to the other suckers- the investors, great and small, who were mesmerized by purported high returns as much as my neighbor was by that SUV. At least my neighbor can plead disability as a defense.
Deals like this go down every day all over America- in fact it seems the exception when someone pays cash or at least a double digit percent down payment. And for over a week, we've been hearing endless whining that credit markets are shutting down and dire things are about to happen. Truth is, dire things have already happened, and we're a nation in hock to countries that know better how to save, invest, and manage their money then we do.
It didn't used to be this way. My grandparents on mom's side bought a tiny house for peanuts during the depression. When they couldn't find work, they added a basement, central heat, a new kitchen. a garage, and a dormer upstairs to add a bedroom. On dad's side, grandma bought the house I now occupy in 1942 on a ten year contract for deed and was kind enough to leave it to me when she passed away 16 years ago. That's the way it was done back then- even home loans were rare until after World War II. And for decades after, VA and FHA loans built middle class suburbia- but you had to prove you actually had the ability to repay them.
Somewhere along the line, we got hooked on easy credit. GM et al used easy credit to keep the assembly lines running. Credit cards, once the toy of the wealthy, were in everyone's wallet. Corporations borrowed millions and even billions to buy other corporations, then run them into the ground. Is it no wonder we're buying ramen noodles on credit for dinner, owe $20,000 on a car that's worth $10,000 that we just put a $3000 repair for on our credit card, and owe $200,000 on a house that's not worth half that?
We are about to OD on debt. The convulsions, sweats, and tremors have started. We're demanding just one more fix, but the offshore investors are cutting us off. It's time for rehab, and we need to dispense credit like a schedule A narcotic- OK for buying your first home and car, with at least a 10% down payment. Prescribed for retooling factories to build energy efficient products for the 21st century, but forbidden for buying other companies and stripping their assets. And shooting up us American taxpayers with $700,000,000,000 in debt to bail out the pushers otherwise known hedge fund traders, Wall Street, et al ought to be a capital offense... Even if I don't approve of capital punishment!
Repeat after me:
"We admitted that we were powerless over debt, and that our lives had become unmanagable..."