The Over-Consumption Myth Is Keeping Us From Enacting Meaningful Financial Services Reform

Despite the persistent rhetoric that people in financial trouble deserve to be there because they made poor choices and now must face the consequences of those choices, the real story behind why so many American families are riding the edge of financial devastation is not as simple as that.

As Elizabeth Warren explains in her paper entitled the Over-Consumption Myth,  the average middle class family carries more debt than it did a generation ago. However, this debt is not due to overspending on frivolous items such as designer clothes, designer foods, or big screen televisions.


Families instead spend more than two thirds of their income on fixed expenses, such as mortgage/rent, car payments, insurance, and tuition. All of these categories have increased drastically, and there is little to no flexibility in any of these areas.

Today’s middle class families have no room for error. They have little to no savings to fall back on during hard times, and no longer is there an extra family member who can be sent into the work force if the breadwinner is out of commission for a while or if some additional income is needed to cover unexpected expenses.

Warren further opines that the persistence and pervasiveness of the over-consumption myth has its root cause in ideology and politics. After all, no one will feel compelled to change laws or to fight for regulation of an out of control financial services industry because a nation of deadbeats can’t control its spending.

If, instead, the truth of the financial pickle the American middle class finds itself in were more widely known,  politicians might have to answer to angry constituents wondering why it is ok that credit card companies can change their contracts at will or that there is such a thing as a subprime mortgage loan which has terms so draconian as to render it doomed to fail from the very start.

The financial services industry sends lobbyists by the thousands (literally) to Washington every year in order to persuade our elected officials to continue to look the other way as it continues its rape of the American consumer.

As recently as 2004, then Chairman of the Federal Reserve, Alan Greenspan,  remarked that adjustable rate mortgages were good for consumers because it allowed them to take advantage of historically low interest rates. His statements went further: he actually encouraged lenders to create “alternatives” to the traditional fixed rate mortgage, as this would benefit American families.

Even before “innovation” in the American mortgage market brought us such monsters as payment option ARMs, credit card issuers had wide latitude in how they wrote their credit card contracts. The terms went from a single page to the brochures the American consumer is presented with today, and among these terms is language that allows the credit card issuer to do with its credit card contract what virtually no other party to a contract can do: change the terms unilaterally.

Yes, recent reforms to the laws governing credit cards now require that consumers be given adequate notification of changes to the contract, and while some of the more egregious practices are now illegal, such as the universal default clause and the double billing method for computing finance charges, it places no cap on interest rates and it still allows the credit companies to change the terms of the contract.

So, it is quite convenient for the financial services industry to continue to peddle this notion of Americans as deadbeat profligates, racking up debt and then running to the bankruptcy court in order to escape the consequences of their rampant consumerism. It makes it so much easier for them continue with business as usual, as wealth continues to be transferred from low and middle class families into the coffers of the financial services elites such as Goldman Sachs CEO Lloyd Blankfein.

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5 Responses to “The Over-Consumption Myth Is Keeping Us From Enacting Meaningful Financial Services Reform”

  1. Great I really like your blog and I have learned something from it. Thank you very much for your post share.

  2. Gill29Teresa says:

    All people deserve wealthy life and loans or financial loan can make it much better. Because freedom depends on money state.

  3. How do we begin to guess what the housing market will do? No offense, but everyone was wrong about it a fewyears ago, so why do we think it will be better in the future? Just because housing is better priced and mortgage rates are lower? Unemployment is still a serious problem. And, the debt the US seems to accumulate every day. I personally think waiting is the best option right now.

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