Not ready for sub-prime players: borrowing's fine; debt's a national crisis.

• Author: Cavanaugh, Tim
• Position: Rant

EVEN CAVE-DWELLING, 15-year-fixed-rate-paying troglodytes were close to hysteria this spring, spooked by speculation that the debacle in the sub-prime mortgage industry, which had already sunk industry leaders like Ownit and AmeriQuest, was on the verge of torpedoing the entire American economy. Senate Banking Committee Chairman Chris Dodd (D-Conn.) proposed a bailout of the multi-billion-dollar industry. Presidential hopeful Hillary Clinton called for a "foreclosure timeout." A bill aiming to stop "predatory lending" practices is still moving through the Senate.

Strangely, though, homebuyers in Southern California, the epicenter of the sub-prime quake, don't seem to have heard the news. Actual closing prices continued to climb throughout the industry crash.

The sub-prime meltdown comes in a context of debt panic--specifically, of other-people's-debt panic. Liberal economists, values conservatives, and hug-the-middle moderates are in full agreement on this one: Poor people's access to debt is driving them to fiscal ruination or worse. James D. Scurlock's celebrated documentary Maxed Out collects horror stories--including youngsters driven to suicide by credit card debt--to prove the thesis that "banks and credit card companies are setting their customers up to fail." Anya Kamenetz, author of Generation Debt, envisions debt-ridden young professionals as the new serfs. (The hard-luck bio on Kamenetz' website includes the Dickensian detail that she "graduated from Yale seven months after the 9/11 attacks.") Ambitious politicians and math-unencumbered reporters are in hot pursuit of the culprits: predatory lenders, indifferent regulators, Madison Avenue captains of consciousness--everybody except people who borrow large sums of money with no intention of paying it back.

The conventional wisdom used to say the poor didn't have enough access to debt. One of the earliest products of Franklin Roosevelt's New Deal was the Home Owners Refinancing Act, which provided mortgage money to more than a million borrowers over a three-year period. Harry Truman's record shows a consistent effort to expand the amount of debt available to willing borrowers.

My favorite artifact of the period's...