Still Going Broke

The week is just starting, but already the news has not been good for the American consumer. Yesterday CNN ran a story, “When Credit Puts You in Jeopardy,” which cited a Demos study showing that overall credit card debt grew by 315 percent from 1989 to 2008. In addition, CardTrack.com is reporting that the percentage of people who are delinquent on their credit card payments is the highest it has been in three years.

Then comes the news that foreclosures were up 57 percent in January over the same month last year. If there was any good news in this report it was that the month-to-month increase in foreclosure had diminshed slightly, but it is clear the foreclosure crisis will continue. Yesterday also brought news that sales of existing homes dropped for the sixth straight month and that prices are continuing to decline. As long as the real estate market is in free fall, more and more people will find themselves trapped in a house that is worth less than the mortgage. If they, like millions of others, get into a financial squeeze, selling the home to get out from under the mortgage will not be an option.

So many people are facing foreclosure that a new cottage industry has cropped up. You Walk Away is a web-based company that sells a “Protection Plan and Kit” to help homeowners through the process of foreclosure. Critics argue that this kind of business is changing consumers’ moral compasses and encouraging irresponsible behavior, but it seems to me that both irresponsible lending and irresponsible escape from obligation are the natural results of an unregulated free market system. The NPR site has a good story on this issue.

On the heels of these discouraging reports comes the news that two bills that would provide relief to holders of subprime mortgages are under attack by the mortgage industry. For a counterbalancing defense of the bills, see Elizabeth Warren’s most recent blog posting.

Finally, today CNNMoney.com is reporting that consumer confidence is at its lowest point in 14 years. In a consumer-driven economy that is very bad news indeed.

Meanwhile, as I write this the Dow Jones Industrials average is up 126 points (1.01%) on the day. Go figure. It seems to me that, more than at any time in recent history, consumers and investors live in two different worlds--worlds that are often in direct conflict. I will have more to say about this in a future post.