Smart bombs: The next sure thing?

I ran across a 2004 article at bankrate.com (slogan: “Comprehensive. Objective. Free.”) extolling the wonders of subprime mortgage lending. It included this assurance:

There are many legitimate subprime lenders. Among them are some of the biggest names in the business, such as Countrywide, Washington Mutual and National City. They have the experience and resources to analyze mind-boggling amounts of information in gigantic databases. That’s what allows them to offer a set of rates and fees tailored to each subprime customer in a process called risk-based pricing.

Three years later, there’s this about Washington Mutual from the Associated Press:

In December, WaMu said it expected loan loss provisions to total as much as $2 billion a quarter in 2008, a forecast executives affirmed. The Seattle-based bank also said in December it would shutter its subprime lending business and control expenses with layoffs and a dividend cut.

Meanwhile, Countrywide Financial is being sold to Bank of America for a fraction of its former worth. The value of its stock has dropped by 80 percent.

Sure, a lot of people lost their jobs, their homes and their shirts, but don’t weep for former CEO Angelo Mozilo. The Wall Street Journal reports that he’s in line for a $110 million severance package, and that’s on top of the $140 million he gained while selling his Countrywide shares in 2006-07.

He won’t need a loan for a house.

As for National City, a Cleveland bank known for “Midwestern common sense,” the Wall Street Journal reports that it no longer makes subprime loans after taking a beating on them.

So, after the savings and loan debacle in the 1980s, the dot-com bust of the 1990s and this decade’s subprime lending crisis, what will be the next go-go scheme that will end in widespread financial ruin while dragging down the overall economy?

House of cards. For sure, people who signed up for subprime loans bear some responsibility for being seduced by the siren song, but it’s somewhat understandable given what has happened with wages in this country. The typical family income for 2006 was 1.7 percent below what it was in 2000, according to the Economic Policy Institute, based in Washington, D.C.

When wages fail to keep pace with rising prices it’s difficult to save for a home loan, let alone maintain pristine credit. Sadly, there were many hard-working families who thought if they couldn’t get ahead in the workplace, they could at least expand their net worth by buying a house.

For them, the American dream has turned into a nightmare.