A society fueled by debt: Hard Times, Easy Credit and the Era of Predatory Lenders

A society fueled by debt
Reviewed by Elizabeth Corcoran

Sunday, March 11, 2007

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Maxed Out

Hard Times, Easy Credit and the Era of Predatory Lenders

By James D. Scurlock

SCRIBNER; 248 PAGES; $24



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Every week, my mailbox coughs out offers for credit cards with lavish allowances. I chuck them in the trash. But what if I didn't? What if I took the money and did what so many advertisements urge -- treated myself to a luxurious vacation, fixed up my kitchen, bought that glittery ring?
For everyone who has been tempted to binge with a credit card -- or for anyone who has wondered how the neighbors always manage to stay at the best resorts in Hawaii -- James D. Scurlock has an answer: Our mad scramble for luxury is fueled by debt. And debt, particularly personal debt, is very, very bad.

Scurlock's provocative and engaging book, "Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders," is a cautionary tale about Americans reeling from too much credit, egged on by greedy companies trying to reap the rewards of astronomically high interest rates. Debt is driving people crazy, wrecking families and in some cases, proving genuinely fatal, he argues. It is also endangering our most fragile socioeconomic layer, the American middle class.

"Over the past generation, banks and credit card companies have made trillions of dollars of high-interest, unsecured debt available, and Americans have scooped it up," Scurlock writes. "Our incomes have risen an average of 1 percent in real terms, while our household debt has increased over 1,000 percent. ... We have no choice but to keep spending until our credit is exhausted and we own nothing." Scurlock is a filmmaker first and then a writer. His movie version of "Maxed Out" opened in San Francisco on Friday at the Opera Plaza cinema. His book elaborates on the stories in the film. The writing is engaging and unencumbered with footnotes or intricate data. This is a sermon against debt, not a scholarly analysis. (For instance, that 1,000 percent increase in "household debt" presumably includes the value of home mortgages.) But the tales Scurlock shares are heart-wrenching: There's the story of Yvonne Pavey, a grandmother in New Albany, Ind., who just vanished one day. Her family later discovered that she had a gambling addiction and tens of thousands of dollars of credit card debt. Her body was found in a nearby river.

Then there are Katherine and John Brown, a mother and grown son, both mentally retarded, living in a trailer in Macon, Miss., on government subsidies. Even though their income was meager, credit card companies besieged them with offers, and the Browns wound up with thousands of dollars of debt. Thanks to bad advice from a friend, they swapped their low-interest, government-subsidized mortgage for a more expensive 40-year mortgage and were soon hounded by bank lawyers demanding the deed to their trailer. Meanwhile, offers for yet more credit continued to fill their mailbox.

Scurlock is nostalgic for an era when bankers served in loco parentis, sternly assessing whether credit applicants deserved a loan. In that golden era, "the notion of handing a customer the 'noose with which to hang himself financially' ... [as one banker put it] was generally acknowledged to be immoral," he writes.

Bankers shed such lofty principles once the highly competitive -- and lucrative -- credit card business got going and deregulation arrived. So bankers quietly morphed into what he regards as financial crack dealers.

Truthfully, debt financing is an essential part of our economic life. Few Americans would own a home if it weren't for mortgages. Countless small businesses would never get launched.

At times, Scurlock gets carried away with his rhetoric: "Familiar phrases like home ownership and American Dream -- simple terms whose goodness once seemed self-evident -- have become hopelessly obscured."

Figuring out exactly what constitutes too much borrowing is like figuring out when you've had too much to drink. Scurlock would like to see the government regulate and warn consumers about too much borrowing, much as it regulates hard liquor and cigarettes.

Yet underlying Scurlock's argument is a fundamental tension between regulation and unfettered commerce: How much should the government create opportunities for the individual? How much should it protect all members of our community from temptation? Bank deregulation has led to more competition among lenders, freer access to capital, higher shareholder returns (for those invested in financial institutions) and economic growth. There are real costs, however: the most aggressive lenders go after the most vulnerable consumers -- particularly immigrants and those unable to make sense of the welter of fine print on the credit applications. "The 'invisible hand' of the free market has morphed into a biased government contraption that favors a few lucky duckies while the many watch from a distance, hoping their turn comes soon," Scurlock writes.

Scurlock offers a handful of remedies, including regulations linking credit ratings to applicants' income rather than to their repayment histories. Sadly, there are no simple answers: Scurlock's solution would stop anyone with unreported income -- including many Mom and Pop proprietorships and immigrants -- from getting capital to develop their businesses.

That said, Scurlock has put a spotlight on an important problem: Too much debt, just like too many French fries or too much booze, can ruin you.

Elizabeth Corcoran is a writer in Burlingame.

This article appeared on page M - 1 of the San Francisco Chronicle