BEFORE THE FALL
Over at Alternet, Joshua Holland interviews James Scurlock, director of Maxed Out, a documentary on debt and the debt industry in America. Completed in 2006 when it made the festival rounds and now available on Netflix, the pic is unfortunately all too timely given the current collapse of the sub-prime lending market.
Here’s Scurlock from the interview:
When I started the project a lot of people didn’t even know what bankruptcy reform was, but most do now. A few weeks ago, nobody knew what “subprime” meant and now because of this whole mortgage fiasco I think everyone knows what that means. So here we are, two years after the start of the project and everything discussed in the film and the book has gotten worse. As we talked to people for the film, it became pretty obvious that things were just totally out of control and there was this sense that at some point the chickens are coming home to roost and that’s largely what’s been happening. I’m not gloating about that — it’s really tragic.
But my sense — and I’ve talked to a lot of people since the project’s been done — is that the really big system hits are yet to come. There are a lot of bad mortgages out there; there are a lot of these “liar loan” mortgages out there; there are a lot of credit cards and people used to paying off their bills by refinancing their houses every year.
And, later, he discusses how the credit industry has changed in America:
It’s because it’s gone from a business based on a conservative business model where you were loaning to people who could safely pay you back and you weren’t making a ton of money — just a bit on the spread — so you had to look at all your risks very, very carefully in order to make money. That model is now history, and the new one is that you charge a huge amount of fees, and a very high rate of interest. So the trick is actually getting people who will pay the most interest and the highest fees.
Credit card fees went from $1.7 billion dollars per year in 1996 to almost $18 billion last year — an increase of more than a 1000%, and that’s where the money is. Now you take someone who pays their bills on time, who has savings and pays their credit cards down each month, well they’re not going to pay those fees. They don’t have to. And you want someone who really needs the credit, who will be willing to pay a very high price for it.
One thing you’ve got to understand is that we have a negative savings rate in this country. Two out of three people can’t pay their credit cards off each month. At the same time, last year we cashed $800 billion dollars out of home equity. Trillions of dollars in the last few years have been cashed out of people’s homes and much of that went to paying off credit card bills. And the cycle continues. So it’s a bit like Enron — you’ve got some wishful thinkers, and then there are these bankers making enormous fees and at the end nobody’s stepping in to stop the party.