Here’s a guy who was studying hard, long before the teacher announced there’d be a test– James Scurlock, author of the companion volume to his documentary, both entitled Maxed Out.  Anyone who’s held a credit card in their hot little hands probably knows the subject of these projects, but what’s amazing is the prescience with which Scurlock announced the house of cards Americans were living in. I haven’t seen

Maxed Out

the film yet, it’s on hold at the library, but I read the book last night and today, and with a copyright date of 2007, plus the lag time of the publishing industry, you have to be sort of astonished at the questions Scurlock asks. Questions like: how long can we sustain this faulty American Dream of living on credit, backed up only by the illusion that home prices only ever go up?

The answer, as it turns out, is until about the middle of 2008. 

Reading the last chapter made me recall the days when I’d get credit card offers, with limits up to about $10,000. I’d open them up and shake my head, asking my husband if these people realized that I didn’t have a job. The answer, of course, is yes, they knew all the important things like that, because credit isn’t based on your ability to repay it, the way it used to be, it’s based on your history of making payments on the debt. I remember when my mother couldn’t get a credit card, because she was divorced, because she didn’t make all that much money, because it would be difficult for her to pay back the unsecured loan. I often wonder how much better off we were growing up that way. I didn’t have everything I wanted– white leather Nike’s with a powder blue swoosh come to mind immediately–but in the early years my mom’s little family wasn’t given the opportunity to overextend ourselves to the point of collapse. We couldn’t buy a house for years, because she couldn’t qualify for a mortgage that she couldn’t repay. Not a problem anymore, in the days–or maybe they’re now the former days?– of interest only, creative financing. If home prices were limited to a person’s actual ability to repay a mortgage, they never would have flown so high in the first place, would they? Okay, you wouldn’t have made a couple hundred thousand on your 4,000 square foot house in Vegas in one year’s time, but then again, you wouldn’t be heading to bankruptcy court either… unless maybe that new law means you can’t do that either.

The problem is, as Scurlock says in his book, bankers used to understand that simple truth of human nature: If you give someone credit, they will probably use it.  And if you give them more credit, and more and more, then you create a trap that Scurlock descriptively refers to as the bear-trap–I’ve seen a picture of one of those things, and felt it from Citi, Chase, and all the others. I commented to my husband last night that there’s nothing so peaceful as sitting in a financial firestorm with no debt outside of a reasonable mortgage, and money in the bank. Not enough money, he pointed out. Where’s your Dave Ramsey fully funded emergency fund? Working on it.

In the end of the book, the funny part is… well, funny might not be the word exactly…that all the regulations that banks once were forced to operate under –you have to read this book to remember them– were largely put in place to protect banks, to protect consumers, and they were instituted as a result of, well, the Great Depression, and the fallout of unregulated lending of that infamous era.

God willing, we’re headed back to a time of better regulation. For now, I’m heading over to Americans for Fairness in Lending to see what else there is to do. The only people who don’t have lobbyists are the ones with illegal arbitration clauses in their credit card agreements.

By the way, if you’re in Ohio and you haven’t voted yet, the correct answer is Yes on Issue 5.